My previous post on Incentive theory

The two posts above over the past couple of weeks were essentially intended to explain the Grand Unified Theory (hereby referred to as GUT). So, what is GUT?

Signals and Incentives are intertwined with each other. I’d say, if incentives are to be secured, then sending signals is a given. To quote a simple example, if a baby wants to secure a chocolate/toy, it can’t secure it just by thinking of the chocolate/toy. It has to direct its parents’ attention through prodding/crying for that chocolate/gift. Thereby, sending the right signal is of paramount importance if the incentive/interest is to be secured.

GUT, as stated in the topic precisely says this. It states that almost every action in the world by human beings (a little more than the Pareto ratio in fact) can be explained through GUT. It may or may not be extendable to all living beings like plants/animals etc., but I will restrict the discussion here to human beings. I will try to explain (if its not already intuitive) through some examples why GUT is universal.

a) Education System: Government education system is a case in point. Most government schools have endowments/grants given by the government. However, the allocation of these grants is with respect to the grades/performance of the school. Better the grades, better the performance, more number of students pass – the higher are the grants. This is a skewed proposition. Applying GUT to this education system, we find that the incentive to the management of the school is to get higher grades – by whatever means possible as long as its not outright fraud. This can be done in multiple ways, primarily being Grade Inflation, wherein the teachers are instructed to be lenient on grades – thereby lending to the perception (signal to be precise) that the school is doing much better than it actually is, thereby receiving better grants (the incentive) than usually should be the case. There is no good way to prove Grade Inflation, which makes the incentive for inflating the grades even stronger.

b) Work: GUT can be applied in multiple ways at work. Education background at work is a case in point. Let’s consider two employees A and B. Both work at the same level doing the same job. However, during work, A works that bit harder and secures an advanced degree (MS/MBA, you name it) from a night school. He updates his employer about his degree in a very diplomatic fashion, through some kind of party/celebration (signal). Now, consider a situation where the employer thinks he should promote someone (incentive) from the level of A and B to a higher level. Whom do you think he/she will choose if A and B worked at a similar skill level? Definitely A – and that’s because of his advanced degree. Note that the advanced degree may or may not have anything to do with the kind of work he does, but the very act of getting a degree (signal) indicates to the employer that a) A is sincere about moving up the corporate ladder b) Or, A will move out of his employment if he is not promoted.

c) Corporate actions: The act of transitioning a company from private to a public limited company can be explained through GUT. In this case, the management is bringing on public shareholders onto its board and is responsible to answer to its shareholders for all its corporate actions going forward. It also has to undertake various legal and government hassles to get listed as a public limited company. But what is the company trying to achieve by moving from a private to a public limited company (signal)? The incentive here is cheaper and wider access to capital. If a company has to extend beyond a certain size, it needs to take on debt/equity as the case may be. The cost of raising capital being a private company is much much higher than when raising as a public limited company. This difference in the cost of capital makes up more than the legal, government and shareholder hassles. Hence the signal of moving from a private to a public company to secure the incentive of cheaper capital.

d) Relationships: GUT can also explain relationships. For example, the male/female try to send out all the right signals during courtship – whether it being well-dressed/groomed, funny anectodes, giving gifts, holding doors – anything and everything to impress and secure the relationship (incentive). The same couple, after marriage, might not display all the lovey-dovey features (lack of signal) due to lack of incentive (no more competition, the boy/girl is secured etc.) After marriage, people tend to think that they understand the other person very well and hence no signaling/very little signaling is required, often leading to fights/quarrels/misunderstandings. Signals, as you realize, are forever.

One critical caveat though before we start applying GUT to anything and everything. Incentives and Signals, the core of GUT rely on one assumption – information asymmetry. This asymmetry can be in the form of material, psychological or otherwise, but critical for GUT to work. If all parties involved in the conversation are on the same page and have the same understanding, GUT can no longer be used.

GUT, as stated in incentive as well as signaling theory blogposts is not in any manner path breaking; it is more intuitive (in that sense, its really a gut feeling (ha!)). It is a framework of understanding and primarily negotiating. In the future, I will try to explain some of the happenings in and around the world I understand through GUT and look at the implications of applying this framework to real world situations.

P.S: Put in Incentive Signaling theory or Signaling Incentive theory on Google search and check what comes up on the first link (nudge, nudge). Never knew so little was written about these two in combination.

The genesis of this ‘Free ISD’ idea was in a conversation with a friend of mine (Arvind).  As the conversation progressed about some other business idea that we were trying to brainstorm, I had this brainwave of offering Free ISD calls. For starters, I certainly thought it was a crazy idea. However, the more I thought about it, the more it made sense. Nothing revolutionary, Nothing iPhonish – it’s just a simple idea borrowed from the ‘Search’ and ‘Movies’ world.

Let me explain.

Search engines like Google are able to provide us services like search, google maps and other gamut of services – all for free. However, these services require a huge amount of processing power and lots of mathematical modeling (which in turn means, hiring a lot of smart Ph.D candidates). All these cost money. Google, however, as we all know makes it money through selling Ads for the most part.

Entertainment sites like Hulu stream movies and tv shows for free, some of them being fantastic classics. However, any person who has used Hulu.com would know that there is an advertisement for about 30 seconds every 30 minutes or so. Those ads pay for the movie itself.

I am sure, by now, the drift is very clear.

Why not, offer free ISD calls, with ads in between.

Let me explain a wee bit further.

What is the average cost of a per minute call from US to India? Some sites like Stanacard, FreeCallPlanet charge 3.3 cents per minute, while established players like Airtel charge 4 cents per minute.

For simplicity purposes, let’s just average both and conclude that the average cost of a per minute call from US to India is around 3.6 cents per minute.

A 10 minute call would cost 36 cents per minute. That’s about Rs. 17 (exchange rate taken at Rs. 48 per dollar).

The idea here is to place an ad just at the start of the call, and an ad every 10 minutes. That is basically two ads, working out to Rs. 8.5 per impression within 10 minutes.

From a customer experience perspective, restricting the ads, to say, 15 seconds duration would probably be optimum, although some tests need to be done to validate that.

So, there it is – an extremely effective way of reaching a consumer at a very low cost.

Why is it effective?

a) Low cost

b) High impression – brand recall of these ads will be very high

c) Hopefully, will lead to increased revenues.

What kind of companies might want to put their ads? Well, let it be context-specific.

a) Money – Marketing money2india.com, Western Union Money Transfer etc

b) Stock broking – NRI broking companies

c) Gifts to India – Companies which supply gifts to your loved ones back in India

d) If consumer demographics are collected well, marketing of Shaadi.com type websites might also not be a bad idea.

What are the disadvantages? And Solutions to those?

a) The consumer might be turned off by the ads – Well, no way out for this. He/She is getting ISD calls for free. Whosoever doesn’t like it, will move away to paid services.

b) The consumer might be apathetic to these ads – Here is where creative ads come into play. A 15 second, creative audio ad competition will do the trick.

c) Conversion might be low – That was always the case with Google ads, ain’t it? The right placement of ads is definitely going to be the key.

What about competition? And Solution for that?

a) Internet Messenger to Internet Messenger talk is free anyways. What is new? – Well, the pervasiveness of computers in India is not as much as in the US. Mobiles are more pervasive, hence it makes more sense to call mobiles than computers.

b) Skype to mobile – Well, this one is definitely a competitor. But then again, which company doesn’t have competition. We need to work out details to beat the competition.

c) Vonage services, VoIP to VoIP is free – Yes, it is indeed free. However, I have heard hundreds of complaints from my friends wherein the broadband in India was not proper and hence the VoIP phone couldn’t work properly.

Any other ideas in concurrence with this?

Oh yeah. If this idea takes off, we can as well extend these services to inter-city (STD) calls. Say, village to village calls might have agriculture related ads etc. Service extension ideas are plenty.

The idea is awesome. So?

Here is where I have a problem formulating my business case. I, for one do not have the capital to set up an Airtel network nor do I have the capital to borrow Fibre Optic capacity. I am definitely not a company that can advertise like money2india.com or shaadi.com. And, starting an advertising company is a far shot. So, who am I in all this idea thingy?

The only role I think I can play is bring the advertisers and the phone companies to-gether to think about this idea. However, once I do that, there is every chance that they will cut me off and strike a deal with one another. The question really is, what can I do to build a business here? Rather, is there a business case at all to this idea – for me?

Thoughts are very much welcome and would be appreciated.

]]> http://kirandhanwada.com/2009/01/29/new-business-idea-free-isd-calls-say-us-to-india/feed/ 4 http://kirandhanwada.com/2008/02/25/random-thoughts/ http://kirandhanwada.com/2008/02/25/random-thoughts/#comments Mon, 25 Feb 2008 05:28:54 +0000 Kiran http://sarvamekam.wordpress.com/?p=81 1) I have been thinking about what to blog a lot lately. Not that I am short of topics – I have got three blogs which are work-in-progress and will come up anytime soon. However, what beats me nowadays is that I have started thinking ‘What is the reader expecting from my blog?’ quite a lot. This realization has not dawned on me suddenly, but over a period of time. One reader who mails me about how the short story could have been treated differently, one friend who calls me and says that he loved the twist in the end, another reader who offers her perspective on some topics I have dealt with – I can go on and on. I cannot boast of a terrific readership (not as yet) – but my blog has around 1400 hits in a couple of months, which I feel is okish, but still a decent number of readers. Is it a problem of managing expectations? Hmm. It is all very well to say ‘Ah! don’t bother about your readers. You just enjoy your writing, readers would come anyways’, ‘This blog is yours, to let out your thoughts, not to cater to other’s interests and expectations’ and all such. I would have repeated the exact two lines I quoted above if you had come to me with this dilemma. And no, no writer’s block as such (that is such a oxymoron – writer’s block, eh? I mean, unless you have written reams and reams of stories and your imagination has dried up to such an extent – then say, I have got a writer’s block. Otherwise, it is pure laziness – not wanting to imagine, not wanting to write – put in literary terms (in an insulting way!)). I think it’s funny in a way- I know the problem (or do I?) and I know the solution (definitely do!) – so what exactly is my problem here?

2) Trust – I can dedicate a whole blog to this particular topic. I will, however, just deal with it in a few sentences here. Sometimes when people place so much trust in you, that they reveal their deepest, darkest secrets to you – I just go ‘whoa?! why did you even tell me that?’. Frankly, it feels more of a burden than happiness that they have trusted you with such a part of them. A colleague who had a baby very recently, comes up to me and talks about his ex and his current married life and how some of his baby’s features resemble his ex. A friend calls up and dumps all her feelings of how her honeymoon went sour etc etc. I can tell from their body language (shivering and their voice quivering) that they might be sharing it for the first time and didn’t know how to convey. These people are not my best friends (and I don’t think your best friends might even tell you about the above examples, even if they happen to them!) but colleagues, friends whom I hardly know. Yet they trust – for reasons totally unknown to me. Funny thing is, I don’t even know how to react when they come up with such things. I am like ‘Err…Oh…Why…mmm…Oh..yaa…mmm’. Totally dumbfounded.

3) Death of Yahoo messenger – How long has it been since you chatted through yahoo messenger? For me, it’s been more than a year now. After the advent of Gmail and Gtalk integration with Gmail – there was only one way yahoo messenger was going – down. However, I do have fond memories of using the yahoo IM. I still remember, I was so excited using all those emoticons in every other line when I first started. Friends’ lists, groups, group chats – it was all so much fun. When I look at Yahoo IM now, it’s more akin to a dilapidated building with all its structure but no life of its own. Most of my friends and colleagues are on Google IM, and they hardly (if ever) open Yahoo IM. Internet penetration, both in terms of access and cost along with Google’s brilliance has just spelt death knell for Yahoo IM. Yahoo IM is dead, Long live Yahoo IM!

1) Hindi Non-veg stories – Now, what in the world did I write on my blogs for the search engine to direct someone to my blog using this phrase? Hindi? My limited knowledge tells me that I write my blogs in English and my spoken hindi is actually not hindi at all but a distorted form of hindi known only to the chosen few. Non-veg – I only wish I could write (human mind is a bubble of ideas – if you get the hint), but I restrained uncontrollably. And yet, this search engine accuses my blog of ‘A’ category – I protest but I don’t know where and how to!!. (In fact, as I write – my friend informs me that someone searched for ‘Labrador Porn’ and the reader was directed to his blog. Uh!).

2) Tips for arranged marriage – I get more of this ‘marriage’ stuff directing readers to my blog. ‘Tips for arranged marriage’, ‘cynical marriage’, ‘arranged marriage gone sour’, ’successful love marriage’…you get the drift, right? As much as you readers have loved the humor of such blogs (and I have enjoyed writing them), ‘Tips and Tricks’ is taking things a little too far (As they say, and I have never understood ‘they’ as usual – There are no shortcuts to success! ). ‘Tips for arranged marriage’…hmm…gives me an idea of starting a marriage counseling firm. You advise, they listen, you get paid, they get thrashed – how simple is that?!

It’s a different matter that KS and JB have accused me of being slightly cynical on certain topics, especially this one – and have vowed to inform this first thing to my future wifey wherever she might be.
Message to future wifey: You know what they say right! Lies, Damned Lies and Kiran’s friends statements about him!!
Message to KS and JB: Hey, I am not cynical ya! I am only optimistically challenged!

3) Relationships and Conversations – See my point of marriage counseling?! I told you that I was good at it There is more to it than meets the eye – or something like that. Never understood what that meant again, but it is, I am told a very profound statement to make. Actually, it should be more like relationships, friendships, courtships and many other ships which have sunk already or are barely afloat and conversations . This one search term is slightly relevant though, to be honest.

4) Rationing – Rationing? Here I thought, I was trying to decipher some of the deepest human emotions(Rational vs Rationalizing) and the search engine term says ‘rationing’?? As if, I was writing from Serbia where even the bread crump and peppermint are rationed or Zimbabwe where even freedom of speech is rationed?? Profundity has been mistaken as Triviality (or maybe it’s true? )

P.S -

1) I digress but what’s up with these New Year resolutions? A randomn date which would make you resolute? Funny, sometimes!

2) Latest joke heard during some corporate training on SAP in a X company (am told the company is in Delhi)

Trainer – So, what do you think is the difference between PERL, PYTHON and AJAX?
Trainee from Bihar – Sir, Gaali mat do sir, abhi bol de raha hu!!!
Trainer – Ok, so do you know anything about ABAP programming?
Trainee from Bihar – Abbey, abhi baap pe kyun jaa raha hai be???