Wednesday, December 26, 2012

Money is Time

Money Is Time 
Living in the Bay Area where housing prices are insane, tradeoffs are very real. Pick any three - a good school district, a reasonable commute, adequate space, and a house less than a million dollars.


While thinking about these tradeoffs, it occurred to me that we are essentially traders in time. We:

  • put in our time 
  • to earn money 
  • to spend it on things 
  • that we didn't have time to spend making ourselves.




And then we make tradeoffs (where to live, how big of a house to have, etc) that help us allocate how we spend the money we earned, during the remainder of our time.  Often we put in more time at work so that we can have more money to buy more things.

But what is "buying" really? Money is only a store of value. Really we trade our time for other people's time - the time they spend learning how to do what they do, and the time they spend doing it.

Here's another way of looking at it. There is some lucky squirrel out there who absolutely loves what they do. When you slog away at a job you tolerate, to earn some money, so that you can afford some luxury that they provide (maybe they design clothes, maybe they cook food, maybe they build neat computer programs) - what you're really doing is subsidizing their hobby.

These thoughts were interrupted by my 20-month-old daughter insisting that I "play blocks".  And then it hit me. She is not part of this ridiculous self-referencing charade. She spends her time (almost) exactly the way she wants.

Somewhere along the way, we forget the big picture, and assume that we have to have certain things. And we give away 53% of our waking hours without even putting up a fight.

If you could start from scratch, reboot; what would you spend your time doing? 

Why not turn things around and spend your days doing what you love to do? I'm sure there will be enough fools out there willing to subsidize your hobby.

PS: In case you're wondering; I consider myself a pretty lucky squirrel. There was a several month stretch recently when I didn't. But then I decided that I was going to find people to subsidize my hobby.

Thursday, October 11, 2012

The Crazy Scifi Future is here.

Almost eight years ago, I got the chance to help bootstrap amazon's development center in Bangalore. One of the things I did was go on a recruiting trip to the Indian School of Business - one of the premier business schools in India.
As an 'out of the box' thinking question, I asked all the candidates: "Imagine that 3D printers become cheap enough to be available in your corner store. How should Amazon react to take advantage of the new reality".

I posed it as a thought experiment; a sci-fi question that seemed completely futuristic.

And here we are today in 2012. The MakerBot Replicator 2 costs just under $2,200. That's about the same price as the early laser printers.

I also just heard Chris Anderson talk about his new book - "Makers - The New Industrial Revolution" at google today and it blew my mind.

We're there. In that crazy sci-fi future.

Some quotes and links from his talk:

The guy who runs techshop is the same guy that used to run kinkos
 If you're a toy company, this should fill you with terror 
Hiring today is not about talent optimization, but about access optimization
and some random links that I want to refer back to later

Ronald Coase's Theory of the Firm
Autodesk123D
Thingaverse
Trimentional
Shapeways
Alibaba
Tinkercad
Lego Digital Designer

Wednesday, April 27, 2011

Sobering thoughts

It takes 10,000 hrs to be proficient at something.
Assume for a moment that meditation is the key to happiness.
How long until you achieve permanent bliss?

Life expectancy in the US =~ 80
Assume you start meditating at 30
You have 50 years of meditation available to you.

If you meditate:
- once a week for an hour => 192 yrs ~ 4 lifetimes.
- 15 minutes a day => 110 yrs ~ 3 lifetimes.
- 30 minutes a day => 55 yrs ~ 1 lifetime if you're lucky
- 1 hour a day => 23 yrs
- 2 hours a day => 14 yrs

So what are you waiting for? Time is of the essence.

Saturday, April 02, 2011

The Meditation Experiment


In January this year I decided to conduct an experiment.

I had just gotten back from my second 10 day meditation retreat, and - no surprises here - I met many people who'd done courses before, but had never followed up with the suggested two hours of meditation per day (two hours? who has two hours a day to spare?!). But the ones who had been meditating for a long time were convinced that a regular daily practice was the key to going deeper.

So I decided to commit to three months of meditating two hours a day. Why only three months? Well - let's just say that I've been told that, any time now, my life is about to turn upside down. I didn't want to make a commitment that I couldn't keep, so I decided to make a strong commitment for at least three months.

My wife wrote a short piece about meditation, and my commitment, on The New York Times' Well Blog. Since then, a lot of people have asked me if I've noticed any benefits, and what they are.

I have. I'm convinced that it's become easier for me to bridge the gap between the person I am and the person I strive to be. My friend who's an associate editor at Yoga Journal said that would make for a terrible quote in any reputable publication because it's such a general statement devoid of any specific examples.

But it's really hard to give specific examples because the benefits are so personal and subjective. And luckily this isn't a reputable publication. Would I behave differently if I weren't meditating two hours a day but only 15 minutes? What if I were chanting or praying instead of meditating? Who knows. I'm not really concerned about answering those questions because I'm not trying to test the efficacy of meditation (I'm convinced of it already).

My experiment wasn't about the meditation, though that was a crucial part of it.

During the course, one follows the eight precepts of Sila (Morality). Among these include 'non violence' - which also translates to being vegetarian, and 'no intoxicants'. The theory goes that perfect morality is an essential foundation for concentration, and concentration in turn is an essential foundation for Wisdom.

I've tried being vegetarian several times (longest stretch - one month), and also tried giving up alcohol (longest stretch - a year). I don't consume either in excessive quantities, and I've always enjoyed both - so I decided that I didn't really need to suppress my desire to consume them. Until now. I mean - would you forgo Wisdom for a plate of chicken tikka masala? (I know someone who just might)

Objective


Starting with the premise that meditation (especially at the two-hour-a-day-level, and after having spent ten, ten-hour days at a retreat) makes one more aware of oneself, I decided that I wanted to see if I could actually notice the effects of consuming meat or alcohol.

Experimental Method

Just giving them up wouldn't work - because I wouldn't have a good 'control' for my experiment. Instead I decided to limit my intake of both to: three times a week each of meat/alcohol in January, twice a week in February, and once a week in March. I marked every intake on google calendar with an A for alcohol and M for meat. I also annotated my calendar any time I had a particularly difficult sit.

A quick diversion. I realize that it is counterproductive to think of a Sit as either "good" or "bad". The whole point is to observe the reality of your experience as it is, in a non-judgmental way, and do so with equanimity. But that doesn't take away from the fact that sometimes I'd sit down and spend the hour calmly focussing on different parts of my body and other times my mind would be a storm, I'd struggle to keep my eyes closed, and then realize that it had only been thirty minutes. I marked those times with a "-1".

Observations

What I found was fascinating.

As suspected, it was almost impossible to have even one drink, and then sit down to meditate. I'd usually organize the evening so that I'd meditate first, and then have a drink (This was made particularly easy thanks to my awesome employer google, where there are meditation rooms on campus. I've meditated in several buildings in Mountain View, as well as in Seattle while on a business trip).

Also, as suspected, the morning after having a couple of beers was a little difficult. But I was surprised that even a single drink tended to have an effect on my meditation the next day.

But the big surprise was the meat. Sure - a big meal of red meat makes most people feel a bit sluggish, but I noticed that the effects of meat were just as unsettling on the mind as alcohol. Definitely less intense (I rarely planned my meditation around a meal unless it was going to involve alcohol), but tended to last for three to four sits (1.5 - 2 days). Dropping down from three meals a week to two, and then to one, really brought this point home. In March I was able to clearly see that the single meat meal upset a balance, whereas in January it was a little harder to notice since the various effects merged together.

On a side note - counting my meat meals had this strange effect where I'd always have to figure out if it was worth using my single meat-coupon (as I called in in my head) on any given meal. Suddenly sausage at breakfast, or chicken soup at lunch was just not worth blowing a coupon on. Note also that, given how fantastic the food at google is, the bar was extraordinarily high.

Conclusion

So where does that leave things now that it's April?

Now that I've meditated at least two hours a day for a little over one hundred days in a row, I really hope to keep going. In fact the thought of stopping pains me. I'm particularly inspired by someone about my age who's been meditating for over seven years.

What about the consumption restrictions? Contrary to my intuition, going through a period of "self-deprivation" actually ended up being instructive and wasn't just an exercise in masochism. If I hadn't controlled my intake in a systematic way, I wouldn't have been able to notice the effects.

But living in such a forced, controlled way doesn't necessarily add to a joyous life. I stand by my earlier conviction that if I give up something (meat or alcohol), it shouldn't be because of some sense that it is right but, rather, because it's just not worth it. Like how putting your hand directly inside a flame is just not appealing because you know you're going to get burnt.

So - I'm no longer counting my meals or my drinks. But I'm pretty sure, if I keep up my "daily practice", I'll change the way I eat and drink.

PS: That's not me in the picture. I don't meditate upside down, and I can't even do lotus position right-side-up.

Tuesday, March 01, 2011

Monetization Part III: Virtual Currency as Business Model Abstraction

This is the third part of my mini series on virtual currency monetization after Part I: Understanding Monetization and Part II: Social Games and Virtual Currency.

Dot Coms


Dot Com Sign

In the past decade, many companies assumed that publishing ("let's get a bunch of users and make a ton of money off ads!") was the only viable business model online since only a few companies (amazon, ebay) seemed to be able to actually sell stuff to people. But while some were making a killing on ads, most found it unsustainable - either their audience wasn't large enough, or it was too fragmented to sell to publishers.

Fast forward to a few years ago, and a few interesting things happened to challenge that assumption:
  • iTunes is wildly successful at distributing paid digital content
  • Facebook opens its platform, and some game developers figure out how to make more than half a billion dollars of revenue
  • the Fremium business model is successfully adopted by several services
...thereby showing that
  • some (many?) people are willing to pay for things online
  • it is possible to create a sustainable online business from paying customers
Today, entrepreneurs like my friend Max need to decide up-front whether to create a paid experience or to go with an advertiser supported model. This affects the fundamental design of their service, and may be a difficult decision to change down the road.

Social game developers, meanwhile, have hit on a formula that lets them abstract their monetization strategy from the experience they provide. Let me explain.

Abstraction

Remember (from my earlier post on Social Games and Virtual Currency) that developers price their experience in virtual currency, and provide multiple ways for users to earn that currency including playing the game, completing an offer, purchasing the currency, or paying for some sort of subscription.

That should sound super familiar to you from Part I which talks about the monetization funnel. Here's that funnel again (click to enlarge):

You can see that all of those methods of monetization live on the funnel too. And, just as you'd expect, the further down that funnel you go, the more virtual currency you get - because that's where the developer makes the most money.

For example, when you're just playing the game to get more points, the developer isn't really making much money off you. At most they may display some ads on the side that you happen to click - this was more popular a few years ago in the early days of social games. And so, earning currency by playing the game usually takes a long time.

On the other end of the spectrum, subscriptions is the most lucrative type of monetization because many people have too much inertia to cancel a subscription so even if they don't use your service, they continue paying you. That's why developers will offer you all sorts of extra benefits if you sign up for a subscription service.

What's so cool about this? Aren't game developers just re-using all the same tools that we've known about for decades?

What's cool is that they've created an experience that's agnostic of the particular monetization strategy. Whereas Max needs to decide upfront which strategy to pursue, using virtual currency adds a layer of abstraction that allows users to self-select, based on how they value their time and money. Developers create up a pricing model for their experience, and then provide different ways for users to obtain the virtual currency - setting things up so that value to them is about the same no matter how the currency is obtained.

So what next? Should Max use virtual currency for his online service? I'll share some final thoughts in Part IV:Virtual Currency for Everyone?

Monday, February 14, 2011

Monetization Part II: Social Games and Virtual Currency

In Part I of the Monetization Story, I wrote about an insight that my friend Krishna had shared with me pertaining to monetization, and also about my other friend Max's monetization dilemma when it came to designing his service.

The world of social games and how they use virtual currency is really quite fascinating, and I think could prove instructive for Max. But first, let's take a quick look at how that world works.

Farmville flowers

The experience (a tractor to tend to your farm) is priced in a virtual currency (2000 Farm Cash for the tractor). Why buy a tractor? It helps tend your farm, which lets you grow more stuff, which lets you build a bigger farm than your friends (Read more about game dynamics from Gabe Zichermann).

And how does one come by 2000 Farm Cash with which to buy the aforementioned tractor? Well, you could:
  • Play the game: Social games are almost always free to play. The more you play, the more Farm Cash you earn (but only a little), and the more involved you get. Maybe you invite your friends to play too. And just maybe now and then you accidentally click on an ad.
  • Complete an 'offer': Want to get 250 Farm Cash quick instead of slogging at the game for two days? How about signing up for a free Netflix subscription? Netflix has estimated the average value of a trial subscription at $70 (I'm making up these numbers somewhat). So they pay an advertising network $70, who pays another network $50, who pays another network $40, who pays the game developer $25 for every new netflix signup. The developer pockets $25 and gives you 250 Farm Cash. You're happy, the developer is happy, all the ad networks are happy, and netflix is happy too.
  • Whip out your wallet: Already signed up for all the free subscriptions and answered all the surveys you can bear? Still need some more Farm Cash to get ahead of your buddy? Pull out your credit card, and you can load up with 250 Farm Cash in seconds - for a mere $20.
  • Subscribe: Are you a baller? Subscribe to Club Pharm and, for $15 a month, you can get 500 Farm Cash as well as special member-only farm itemz!
Most people undervalue their time (they're the ones willing to spend hours looking for a deal that saves them $5) and they'll tend to play for free or by completing an offer. But every now and then you'll get a few loyal users who value your service, or their time, enough to pay you in cash.

Although only a few people will pay, it's estimated that over 80 percent of game revenues come from direct payments.

Reflecting on this, it's important to note that using a virtual currency doesn't magically mint money for you - it's just a useful representation of value, and is only as valuable as the experience it enables.

Using virtual currency instead of real money is useful for multiple reasons:
  • It provides an easy way for developers to incentivize specific actions within the game without actually giving away real money.
  • It makes it easy to price items and charge users small amounts of money
  • It retains the fiction of the game - it's less jarring to think about farm cash, rather than realize that you're spending hard-earned USD.
There are many tricks to making a virtual currency work well - like making it difficult for people to judge the 'real value' of that currency, making sure that the tasks that enable you to earn it are meaningful, and ensuring that there are sufficiently interesting things for people to spend their virtual currency on, so that they are enticed into figuring out how to obtain it.

However, what I'm really interested in doing is taking a step back and exploring if and how we can apply some of what games have done with virtual currency to the broader question of online monetization; hopefully in a way that will help Max. In my next post, I'll try to explain how I think games have been able to abstract away their monetization strategy, and then see if this is of general use to others.

Tuesday, February 01, 2011

Monetization Part I: Understanding Monetization

A few days ago I had breakfast with my friend Max to talk about growing and monetizing his online service. He asked about whether to monetize using advertising or subscriptions, and I drew something resembling the following:



He saved me from committing a start-up cliché by handing me an index card before I could use my napkin.

The Monetization Funnel


The idea for this came from my friend Krishna Motukuri. When I was still working fulltime on reporterist.com, I would periodically go on long bike rides with him, and listen to his valuable start-up advice afterwards over beers and burgers.
Krishna's insight was that in our economy everyone is funneling users towards a purchase/ consumption/ transaction point.
The farther you are from getting a user to that transaction, the larger your potential audience is but since, the value you are adding is tiny, you can only earn a small cut. On the other hand, the closer someone is to making a transaction, the higher your margins for getting them closer. But there’re only a few people who are that close.
So there’s actually continuum of monetization (using Crossfit as an example):
  • brand advertising – A billboard for a Crossfit gym.
  • various intent-driven advertising priced as CPC or CPA – An ad for Crossfit showing up when you search for “fitness” or on a body building blog.
  • lead generation – A gift (first month of membership free?) in exchange for getting someone to come into the gym and take a tour.
  • commerce – Signing someone up for their first crossfit class.
  • subscriptions – Subscriptions are obvious for gyms– but think about something like amazon subscriptions or prime)

Understand your funnel

Saying “I’m going to get lots of users and then figure out how to monetize” is okay (if you have the runway) but it’s still important to have a feel for the numbers. Some questions to ask:
  • How large of an audience are we talking about? A thousand users? A million? A hundred million?
  • Who wants to reach that audience?
  • How much is it worth to them?
  • How will you connect with them (the advertisers, not the audience)?
Max needs to figure out which funnel his service fits into, and what its shape is. If he can compare the approximate areas (revenue per user * audience size) at different points along that funnel he can figure out how best to monetize his users.
Not that getting these numbers right is easy – how do you know what a user is worth? How do you predict the growth or virality of your service? If you build an ad-supported experience, what do you do if you got your numbers wrong?

This is something I've been thinking about recently in the context of virtual currency. I think there's a connection. In my next post, I'll talk a bit more about games and virtual currency, and then try to explain why I think they've hit on something more generally applicable.