Month: January 2009

A new paradigm for selling advertising slots

There are fundamentally two kinds of videos – videos for which willing to pay to see, and videos which you are paid to see. It is intuitive that advertisements fall in the latter model – for watching an advertisement, you are being “paid” a certain sum of virtual money which gets encashed when you watch the program along with with the advertisement appears.

You might also notice that despite all the hue and cry about copyrights and people getting videos pulled off youtube, it is unlikely to find a case where an advertisement has been pulled off youtube. An advertiser will only be too happy to have more people watching the advertisement, and by pulling it off youtube, the advertisor will be shooting himself in the foot.

When you are watching TV, and a painful ad comes along, you are likely to switch channels. Or get up and take a break. And turn your eyeball to the screen only when all the advertisements for that particular session are over. So, in effect, by showing a bad advertisement, a channel is reducing the number of eyeballs for the other advertisement in the same session (a session is defined as a consecutive set of advertisements, uninterrupted by the main program. it can run from approximately thirty seconds to five minutes)

On the other hand, a good, popular and well-made advertisement is unlikely to make the viewer switch channels, or get up. It is more likely to generate higher eyeballs for the other advertisements in the session – without any additional effort by the other advertisements in the slot. And thus pushes up the value added for all advertisers in that particular slot.

So the idea is simple – advertising slot providers (i.e. TV channels, etc.) should incentivise advertisers to make better advertisements. Or use the better advertisements more. And the simplest incentive you can give is monetary. So offer a discount for the better and more popular ads. So far, the model has been to make viewers view ads that come along with a programme. The new paradigm is to make viewers view ads because they are placed next to ads that viewers want to see.

I’m sure that once this kind of pricing gets implemented, it will be more profitable both for the TV Channel and for the viewers. TV Channels will be able to sell the “network value” of placing ads on their medium, and use that to more than compensate for the lost revenue in terms of discount. Viewers will like it because the bad ads will be gone, and they will be saved the trouble of switching channels each time there is an ad break.

There remains the small matter of implementation. We need a way for rating advertisements. Online/SMS polling will be no good as they can be rigged. Neither will youtube help. We will need to find a better way to gauge how much people in general find ads. If there is some way in which TRPs for ads can be measured, that would be helpful, too. I’ll think about this problem, and maybe publish a solution to it in due course. I urge you also to think about this kind model, and let me know if you can come up with any bright ideas.

One option would be for the channel to pick what it calls a “winner advertisement” and fix the various slots in which it is going to be played. Maybe the winner might be given the choice of picking which slots it wants to go in. Then, the channel can make the placement of these winner ads public to the other advertisers and encourage them to bid for the surrounding slots. This bidding can help gauge the popularity of the initial winner ad, and then the channel should share some part of the proceeds of the auction with the winner advertiser. And when the premium that other advertisers are willing to pay in order to get a slot close to the winner drops, the channel will know that it is not a winner anymore and replace it.

So what I have described here is some sort of effective peer-review process for advertisements. Different channels can choose different strategies for the order in which to let channels pick their slots, about what kind of auctions to hold, etc. The most important thing about this peer-review process is that here people are voting with their chequebooks – and when people do that, they are very likely to know what they are doing.

So think about this. I think it is a good idea, and it seems like one of those things that if one channel implements it, it will become some sort of an industry-wide standard. And if you are not doing this because you think you don’t have quantitatively inclines people,  the fired investment bankers are still around.

Fighterization

The story begins with this slightly old blog-post written by Ritesh Banglani, a guest faculty at IIMB. Banglani writes:

In the first class of my course at IIM, I asked students a simple question: What is strategy?. The most interesting response came from a rather cynical student: “Start with common sense, then add some jargon. What you get is strategy”.

I didn’t say so at the time, but that is precisely what strategy is not. If anything, strategy is uncommon sense – making choices that may not appear intuitive at the time.

The cynical student in question mentioned this during a conversation earlier today, and I thought the discussion that followed merited a blog post. I thank the cynical student for his contribution to this thought.

Innovation happens when someone gets an insight, which, by definition, is a stud process. The person innovating, naturally, is a stud. For a few years after the innovation, the idea is still in development, and it is still very tough for other people to do what the pioneer stud has done. The first wave of people to do what the pioneer has done will also naturally be studs.

However, after the idea has been established, the market for it grows. The pool of studs that are then involved in the idea won’t be able to service the entire market. Also, being studs, they are prone to get bored easily with whatever they are doing, and will want to move on. The increased size of the market as well as the gaps left by the leaving studs will attract fighters to this idea.

Now, fighters are not natural when it comes to generating insight. However, they are excellent at following processes. And once an idea has been developed beyond the initial stage, it makes itself amenable to processes. And thus, a set of processes get established. Soon enough, thanks to the processes, the fighters are able to do a much better job of implementing this idea as compared to the pioneering studs, and studs get driven out of the industry.

This generalized process that I have just described applies to all fields, or “domains” if you would like to call it that. Let us now leave the generalization and come to one specific profession – strategy consulting. Strategy consulting started off as an insight-driven process, a stud process. Industrialists would go to consultants in order to get insights, and out of the box ideas, in order to take forward their business. Soon, the business became profitable, and the consultants, like any good capitalists wanted to expand.

There was one problem, however – talent. It wasn’t easy for them to attract similarly insightful wannabe consultants to work for them. Similarly insightful people would either not want to work in strategy consulting, or they would start their own consulting shops. Thus, there was a need to bring in the fighters into the mix.

It was to facilitate the entry of the fighters that the various consulting models and frameworks came into being. A large set of processes were drafted, and all that the fighter consultants had to do was to identify the appropriate processes for the situation and then implement them along with the client. Insight and out-of-the-box thinking were thrown out of the window. Hourly billing became the industry standard.

Strategy consulting has come a full circle now. It has been “fighterized”. Clients nowadays don’t expect insight. They expect processes. They expect to be led down the “correct” path, and they want to make sure they don’t make obvious mistakes. And thus, the “strategy” that the consulting firms offer are mostly common sense which has been appropriately packaged. And this has percolated down to business schools. And so the cynical student’s cynicism is valid.

Yede thumbi haaduvenu format is unfair

A month or so back, I had blogged about yede thumbi haaduvenu, a talent hunt show for young singers on ETV Kannada. I was full of praise for the event. About the format. About the way SPB comperes it. About the judging. Organization. And all that. I think I had written that post towards the end of last season. The new season has just begun. And I have a crib. It is not a minor one.

The format has changed. Last time around, it was a “normal knockout”, with round of 16, quarters, semis, final, etc. Each round would have four contestants of which two would progress to the next round and two would get eliminated. It was a nice and clean system – considering that any non-knockout format for a TV show isn’t a good idea.

Now, they have some sort of a serial knockout. Each episode has four kids, of which two get knocked out. The two who survive compete the following week, with two new people. Two out of these four qualify further. And so on.

This might have been an excellent format – if only the players were robots. If only the players didn’t have that human element called “form”. The format as it is right now is heavily biased in favour of kids who join the program in later rounds. Maybe they have been seeded there based on qualification placings. Nevertheless, it is wrong, and puts the kids who join early at too much of a disadvantage.

Kids who join early need to be at their top form for a larger number of episodes than those that join later. Sustaining an above-average performance over a larger stretch of time takes much more effort. You will also need to keep in mind that the pressure to perform in such events is huge. For the kids who join later, however, all it takes is for them to get lucky and produce terrific form for  a handful of episodes and they are through.

I suppose the producers of this event simply didnt’ realize that there is something called uncertainty. They would’ve looked at the format and said “this seems simpler for spectators and anyways the best will have to beat everyone else so this is ok”. I’m sure it the people who came up with this format are a bunch of fools who have no clue about either mathematics or about human tendency. I go back to one of my recent posts and call for the so-called “creative” or “qualitative” industry to cash in on the ibanking bust and take in some quants.

I’m reminded of one of the world chess championship (FIDE) cycles in the late 90s. They had a strenuous knockout tournament for a month to decide the challenger. And the winner of this tournament (Anand) then played the reigning champion Karpov who had been directly “seeded into the finals”. Anand got walloped by Karpov. And he had said something like “this is not fair. I have run the full marathon and in the last 100 meters this guy joins the race. what sort of a contest is this”

The current format of yede thumbi haaduvenu is no different. Now, if only the producers were to have some sense.

Slender Loris and Punny Animal Names

I think one of my cousins ( a very young fellow) looks like a Slender Loris, and refer to him by that name. Unfortunately, I can’t make the nickname official because of a punny reason.

The Kannada word for Slender Loris is “Kaadupaapa” which is supposed to mean “baby of the forest” or some such thing. The problem arises with the word “Kaadu” which can refer to both forest and as “troublesome”. I suppose the reason for these diverse meanings is some sort of root meaning “wild”.

So Kaadupaapa can also mean “troublesome baby”. There’s more to it. “Kaadupaapa” also happens to be a fairly common abuse that is directed at young kids when they get too troublesome. I clearly remember my mother abusing me using this phrase a few times when I was small. So nicknaming a young boy as Kaadupaapa would be similar to some guy in IIT being given a nickname such as “bastard” or “chutiya”. And clearly the parents of the kid will not approve and the baptist will end up getting a bad name in their eyes.

This unfortunate combination of circumstances means that I can’t make official what I think is a splendid nickname. At least, in IIT I didn’t have to bother about what the parents of the boys would think about the nicknames that I’d dole out, which enabled me to dish out a few decent ones. Though I admit that a conspiracy by the institute to deny freshies to Narmada Hostel meant that there weren’t too many people I could have named.

The Aftermath

Baada collaborated on the research leading up to his post. I hereby acknowledge his contribution and condemn his laziness for not blogging it himself.

One of the major problems of the financial crisis that has been happening for about two years now is that investment bankers, as a profession, stand discredited. Before this, they used to claim to be on the top of the intellectual ladder. And now, thanks to a handful (more than a handful; but still a small proportion) of phenomenally stupid investment bankers, the entire community stands discredited. Not just that, they have left the community of quants, of people who can be good at structuring, of finance people, of statisticians, all discredited. You say “all you need to do is to get a few ibankers into these jobs” and you’ll have people come at you like a pack of hounds, waving Mint and saying “look at the damage these buggers have caused, and you think they can solve this problem”.

So Baada and I were talking about cricket the other day. About how thanks to the demands of television, flat pitches are being prepared everywhere. Which is leading to tame and boring draws. Which has led to domestic cricket being effectively reduced to a one-innings game. Which has led to massive fourth innings run chases. Which has led to bowlers break down once every couple of seasons. And so forth.

The argument put forth in favour of flat pitches is that in order to maximise television revenues, you need the game to last five days. Excellent argument, and Baada and I agreed to it. But the friggin’ point is that if you have  a boring game, no one is going to watch it. If you have a game that is most likely to end up as a draw, it will have no audience. Advertisers would be paying through their nose for near-zilch viewership.

In the medium term, things should even out. Advertisers will realize that due to the boring nature of Test cricket, no one will watch it anyway, and will back away. Ad rates will fall. And TV rights bids will fall consequently. And the boards will understand their folly and take steps to make cricket interetsing again. (there is also the danger that boards will use this to say that no one watches Test cricket anymore and scraps it altogether). However, advertisers should not be so passive and wait for things to even out.

Given a large number of statistics, playing conditions, day of week seasonality and all such stuff, it shouldn’t be hard for the smart advertiser to figure out which are going to be his most profitable slots. And bid specifically for those. If one smart advertiser does that, then that advertiser stands to gain against other advertisers who will end up paying more money for less profitable slots. And so all advertisers will become smart. Now, the channels will stop seeing uniform demand patterns for their various advertising slots. They will now need to acquire smartness in order to combat the smart advertisers. This way, smartness will prevail in the system.

I’m sure that once something like this happens, natural balance will get restored. It will take much less time for TV channels to realize that three-day Tests on bowling pitches can get them greater revenues compared to runfests played over five days. And they won’t take much time to communicate the same to the boards who will then restore Test cricket back to glory.

The problem with a lot of advertising people is that they see themselves as “creative people” because of which they assume they don’t need to know and use maths. And they don’t do the smart calculations I described earlier. As for the brand managers, it is likely that a lot of them decided to pursue marketing because they either didn’t like quant or found themselves weak at quant. Apart from a few simple excel models, they too are likely to shun the kind of smartness required here.

So where are the white knights who can save the version of the gentleman’s game played in whites? Not currently in the ad agencies. Most likely not in the marketing departments. They are all out there. A few months ago, they were employed. Earning very good salaries, and grand bonuses. Earning amounts of money unaffordable to most advertising and marketing companies. Thanks to the financial meltdown, they are available now. Looking for a fresh challenge.

This is the best time for you to infuse quant to your business. You won’t get the kind of quant supply in the market that you are seeing now. Even if the financial industry doesn’t recover (in any case it will never go back to 2007 levels), supply side factors should ensure lower supply. Do that little experiment now. Acknowledge that numbers can do a lot of good for your business. Understand what structuring is all about, and estimate the kind of impact a good structurer can have on your revenues. Make that little bit effort and I’m sure you’ll get convinced. Go make that offer. An offer these ex-ibankers can’t refuse in the current circumstances at least.

PS: When I refer to investment banking, I also include the “outside-the-wall” side of the business (called “markets”; “sales and trading”; “securities” and various other names). In fact, I mostly talk about the outside-the-wall business, not having had any exposure inside the wall.

Half a rupee

At the end of the first week, I had run up a debt of half a rupee – following some settlements we had to make at the Xerox shop.

Back home for the weekend, I happened to find two twenty-five paisa coins while cleaning out my desk.

I gave them to her first thing on Monday morning, in full view of the class. She has never been nice to me after that.

Money and religion

No matter how much you preach, how much you write, how many arguments you make in favour of your stand that there is no god, the believers will ignore you. And given that believers usually have strong sense of belief, it is very unlikely that your preaching and reasoning will have any effect on them.

Instead, the easiest way for you to spread your message is to make the religious ones pay. Literally. Religious arbitrage, I call it. Religion usually comes with a set of beliefs. And superstitions. And the religious people are more likely or less likely to do certain things because of their beliefs. And you need to exploit these beliefs. Exploit them as much as you can, and try make money at the believers’ expense.

My argument is this: if you think your religion or the lack of it is better than any other religion, there must surely be a way in which you can exploit this to make money at the expense of the other religion. So go ahead and do it. Nothing talks like money.

I did my bit in this direction last Diwali. I went to buy a mobile phone, and figured that it being dhan teras the shopkeeper was loathe to send me away without selling me anything. I managed to get the phone for almost a thousand rupees below what it cost the shopkeeper (I confirmed this figure with a friend who is a sales manager at Nokia). The poor guy even gave me a bill for an amount much larger than what I’d actually paid.

You might claim that I could have bargained harder. But as I said, even religion has its monetary limits, and the shopkeeper would’ve figured that incurring the wrath of the gods would’ve been cheaper than selling the phone to me for lower than he actually did.

So stop preaching. Stop preaching when you know you have no chance. Stop bringing up the FSM in every line of conversation. And let money do the talking.

PS: Religion might just be a special case for this argument. You should be able to take advantage of all sorts of beliefs (including the non-religious ones) using this strategy.

Year Ending Post

Last december 31, I wrote a this day that year post. Two years back, I had published a short story. The year before, I had written about the events of the day, and one year prior I was mugging for what was going to be a disastrous marketing exam. As I am writing this, I’m playing scrabble on facebook, and bridge with my computer. I’m listening to music, and am planning to hit the sack soon.

This afternoon I received a mail from my boss, which he said is a standard format mail he sends to friends and colleagues. It was full of pictures of him and his wife and his kids, and stories about what they did this year. About the changes and special events in each of their lives. About how the year has been from different perspectives. And so forth. I think I have received a couple of other similar mails (from US based people – this might be some american funda; my boss also lived in America till early this year) from other acquaintances (though, without pics) which I haven’t bothered to read. Since I’m clueless about what to write, I think I’ll just do a standard year-end roundup.

The most significant thing for me was my move to Gurgaon, and to this new job. That had been preceded by four months of joblessness, and more than two years of acute NED (in fact, I think it was during this period of extended NED that I actually invented the term NED).

The concept of NED also seemed to advance by leaps and bounds this year. I have heard of people who are at least three degrees away from me use it. The message of this concept seems to be spreading. I am sure that one day it will be famous, but then I’m not sure if I, as its inventor/discoverer, will get due credit.

Another significant event of the year has been the movement of this blog from livejournal to its present location. I must mention that this website has been like “glad bangles” for me. A week after I inaugurated this, I had a nice job offer, ending over a year of NED. There were a few other changes also in my life around that time, which I don’t remember now. What I do remember was classifying this website as “glad bangles”. and I like this better than Mad Angles.

On the louvvu front, it was a very quiet year, apart from one quick episode. Maybe one of the least productive years – comparable, maybe, to my years back in IIT.

Ok I think NED is happening. i just resigned my scrabble game. I had resigned my bridge game ages back, and I’d closed the program. I’m feeling sleepy now. So I’ll close it here. Happy new year. And I think this is the worst year-ending post that I’ve written in a long time. This website maybe deserved a much better new year post in the year end but it’s ok.