Archive for the english category

Joni

Buying? How to determine the offer price for a website

english

Introduction

A few years back I was considering of buying a website. In the end, I didn’t end up making the offer, largely because I couldn’t figure out how to calculate the offer price in a plausible way. Since then I’ve had a bit more experience in estimating figures in other contexts, as well as participating in some M&A discussions in the ecommerce field. But today, while cleaning my inbox, I happened to read that old email from many years ago, and thought of sharing some thoughts on the topic — hopefully as a bit wiser person!

Basic figures

If you are planning of buying a website and thinking about the offer price, you should know some basic figures of the website:

ARPU, or average revenue per user

if there is none, you have to estimate the earning potential. If the monetization model is advertising, find some stats about avg. CPMs in the industry. If it’s freemium, consider avg. revenue per premium user as well as the conversion rate from free to paid (again, you can find some industry averages).

Number of users/visitors

This is easy to get from analytics software.

Revenue

Revenue or revenue potential (if there is none at the moment) can be calculated by multiplying the two previous figures. So you would move from unit metrics to aggregate numbers.

Profit

You also need to consider the cost of maintenance, marketing and other actions that are needed to keep the site running and growing. Deduct those from the revenue to get profit. If you want faster growth, you need to factor in an investment for that; although it’s not exactly a part of the offer calculation, it still needs to be considered in the overall plan for making money with the website.

Calculating the offer price

Then, to determine offer price you need to multiply the profit with a time unit, e.g. months or years, to get the offer price. This figure is like a line in the sand — you can try and think it from the seller’s perspective: how many years or months of profit would he want to recoup in order for him to be willing to sell.

As an investor, your best break can be found when the profit is low, but revenue potential and number of visitors as well as visitor loyalty are high. The high revenue potential means that there is likely to be a realistic monetization model, but because that has not been applied yet, one can negotiate a good price if the seller is willing to let go of the website. Loyalty – manifested in high rate of returning visitors – indicates that the website provides real value for its visitors instead of relying e.g. on spammy tactics to lure in casual browsers. In the end, the quality of traffic matters a lot in whatever business model you apply.

You should also consider the stability of the figures – in particular, the historical growth rate. With the historical growth rate, you are able to project the development of traffic and revenue in the future. At this point, be realistic of what it takes to uphold the growth rate and thorough in asking the current owner in great detail what he has done so far and why. This information is highly valuable.

Because there is a lot of imprecision in coming up with the aforementioned figures, you would be wise to factor in risk at every stage of the calculation. Convey the risk also to the buyer in a credible way, so that he sees ‘it won’t be easy’ to get your money back. This is a negotiation tactic but also the real state of affairs in many cases.

Closing remarks

I don’t include any “goodwill” on things like brand or design in the calculation, because I think those are irrelevant for the price determination. All sunk costs that don’t serve the revenue potential are pretty much redundant — sticking to real numbers and, when they are absent, realistic estimates — is a much better way of determining the price of a website.

Joni

How to measure media bias?

english

Mass media is old, and so is their bias.

Introduction

Media bias is under heavy discussion at the moment, especially relating to the on-going presidential election in the US. However, the quality of discussion is not the way it should be; I mean, there should be objective analysis on the role of the media. Instead, most comments are politically motivated accusations or denials. This article aims to be objective, discussing the measurement of media bias; that is, how could we identify whether a particular media outlet is biased or not? The author feels there are not generally acknowledged measures for this, so it is easy to claim or deny bias without factual validation. Essentially, this erodes the quality of the discussion, leading only into a war of opinions. Second, without the existence of such measures, both the media and the general public are unable to monitor the fairness of coverage.

Why is media fairness important?

Fairness of the media is important for one main reason: the media have a strong influence on the public opinion. In other words, journalists have great power, and with great power comes great responsibility. The existence of bias leads to different standards of coverage depending on the topic being reported. In other words, the information is being used to portray a selective view of the world. This is analogous to confirmation bias; a person wants to prove a certain point, so he or she only acknowledges evidence supporting that point. Such behavior is very easy for human beings, for which reason journalists should be extra cautious in letting their own opinions influence the content of their reportage.

In addition to being a private problem, the media bias can also be understood as a systemic problem. This arises through 1) official guidelines and 2) informal group think. First, the official guidelines means that the opinions, beliefs or worldviews of the particular media outlet are diffused down the organization. Meaning that the editorial board communicates its official stance (“we, as a media outlet, support a political candidate X”) which is then taken by the individual reporters as their ethos. When the media outlet itself, or the surrounding “media industry” as a whole, absorbs a view, there is a tendency to silence the dissidents. This, again, can be reduced to elementary human psychology, known as the conformity bias or group think. Because others in your reference group accept a certain viewpoint, you are more likely to accept it as well due to social pressure. The informal dynamics are even more dangerous to objective reporting than the official guidelines because they are subtle and implicit by nature. In other words, journalist may not be aware of bias and just consider their worldview “normal” while arguments opposing it are classified as wrong and harmful.

Finally, media fairness is important due to its larger implications on information sources and the actions taken by citizens based on the information they are exposed to. It is in the society’s best interest that people resort to legitimate and trustworthy sources of information, as opposed to unofficial, rogue sources that can spread misinformation or disinformation. However, when the media becomes biased, it loses its legitimacy and becomes discredited; as a form of reactance to the biased stories, citizens turn to alternative sources of information. The problem is that these sources may not be trustworthy at all. Therefore, by waving their journalistic ethics, the mass media become at par with all other information sources; in a word, lose their credibility. The lack of credible sources of information leads into a myriad of problems for the society, such as distrust in the government, civil unrest or other forms of action people take based on the information they receive. Under such circumstances, the problem of “echo chamber” is fortified — individuals feel free to select their sources according to their own beliefs instead of facts. After all, if all information is biased, what does it matter which one you choose to believe in?

How to measure media bias?

Overview

While it may not be difficult to define media bias at a general level, it may be difficult to observe an instance of bias in an unanimously acceptable way. That is where commonly accepted measures could be of some help. To come up with such measures, we can start by defining the information elements that can be retrieved for objectivity analysis. Then, we should consider how they can best be analyzed to determine whether a particular media outlet is biased.

In other words, what information do we have? Well, we can observe two sources: 1) the media itself, and 2) all other empirical observations (e.g., events taking place). Notice that observing the world only through media would be inaccurate testimony of human behavior; we draw a lot from our own experiences and from around us. By observing the stories created by the media we know what is being reported and what is not being reported. By observing things around us (apart from the media), we know what is happening and what is not happening. By combining these dimensions, we can derive

  1. what is being reported (and happens)
  2. what is being reported (but does not happen)
  3. what is not being reported (but happens), and
  4. what is not being reported (but does not happen).

Numbers 2 and 4 are not deemed relevant for this inquiry, but 1 and 3 are. Namely, the choice of information, i.e. what is being reported and what is being left out of reporting. Hence, this is the first dimension of our measurement framework.

1. Choice of information

  • topic inclusion — what topics are reported (themes –> identify, classify, count)
  • topic exclusion — what topics are not reported (reference –> define, classify, count)
  • story inclusion — what is included in the reportage (themes –> identify, classify, count)
  • story exclusion — what is left out of the reportage (reference –> define, classify, count)
  • story frequency — how many times a story is repeated (count)

This dimension measures what is being talked about in the media. It measures inclusion, exclusion and frequency to determine what information the media disseminates. The two levels are topics and stories — both have themes that can be identified, then material classified into them, and counted to get an understanding of the coverage. Measuring exclusion works in the same way, except the analyst needs to have a frame of reference he or she can compare the found themes with. For example, if the frame of reference contains “Education” and the topics found from the material do not include education, then it can be concluded that the media at the period of sampling did not cover education. Besides themes, reference can include polarity, and thus one can examine if opposing views are given equal coverage. Finally, the frequency of stories measures media’s emphasis; reflecting the choice of information.

Because all information is selected from a close-to-infinite pool of potential stories, one could argue that all reportage is inherently biased. Indeed, there may not be universal criteria that would justify reporting Topic A over Topic B. However, measurement helps form a clearer picture of a) what the media as a whole is reporting, and b) what does each individual media outlet report in comparison to others. A member of the audience is then better informed on what themes the media has chosen to report. This type of helicopter view can enhance the ability to detect a biased information choice, either by a particular media outlet or the media as a whole.

The question of information choice is pertinent to media bias, especially relating to exclusion of information. A biased reporter can defend himself by arguing “If I’m biased, show me where!”. But bias is not the same as inaccuracy. A biased story can still be accurate, for example, it may only leave some critical information out. The emphasis of a certain piece of information at the expense of other is a clear form of bias. Because not every piece of information can be included in a story, something is forcefully let out. Therefore, there is a temptation to favor a certain story-line. However, this concern can be neutralized by introducing balance; for a given topic, let there be an equal effort for exhibiting positive and negative evidence. And in terms of exclusion, discarding an equal amount of information from both extremes, if need be.

In addition to measuring what is being reported, we also need to consider how it is being reported. This is the second dimension of the measurement framework, dealing with the formulation of information.

2. Formulation of information

  • IN INTERVIEWS: question formulation — are the questions reporters are asking neutral or biased in terms of substance (identify, classify, count)
  • IN REPORTS: message formulation — are the paragraphs/sentences in reportage neutral or biased in terms of substance (classify, count)
  • IN INTERVIEWS: tone — is the tone reporters are asking the questions neutral or biased (classify count)
  • IN REPORTS: tone — are the paragraphs/sentences in reportage neutral or biased in terms of tone (classify, count)
  • loaded headlines (identify, count)
  • loaded vocabulary (identify, count)
  • general sentiment towards key objects (identify, classify: pos/neg/neutral)

This dimension measures how the media reports on the topics it has chosen. It is a form of content analysis, involving qualitative and quantitative features. Measures cover interview type of settings, as well as various reportages such as newspaper articles and television coverage. The content can be broken down into pieces (questions, paragraphs, sentences) and their objectivity evaluated based on both substance and tone. An example of bias in substance would be presenting an opinion as a fact, or taking a piece of information out of context. An example of biased tone would be using negative or positive adjectives in relation to select objects (e.g., presidential candidates).

Presenting loaded headlines and text as percentage of total observations gives an indication of how biased the content is. In addition, the analyst can evaluate the general sentiment the reportage portrays of key objects — this includes first identifying the key objects of the story, and then classifying their treatment on a three-fold scale (positive, negative, neutral).

I mentioned earlier that agreeing on the observation of bias is an issue. This is due to the interpretative nature of these measures; i.e., they involve a degree of subjectivity which is generally not considered as a good characteristic for a measure. Counting frequencies (e.g., how often a word was mentioned) is not susceptible to interpretation but judging the tone of the reporter is. Yet, those are the kind of cues that reveal a bias, so they should be incorporated in the measurement framework. Perhaps we can draw an analogy to any form of research here; it is always up to the integrity of the analyst to draw conclusions. Even studies that are said to include high reliability by design can be reported in a biased way, e.g. by re-framing the original hypotheses. Ultimately, application of measurement in social sciences remains at the shoulder of the researcher. Any well-trained, committed researcher is more likely to follow the guideline of objectivity than not; but of course this cannot be guaranteed. The explication of method application should reveal to an outsider the degree of trustworthiness of the study, although the evaluation requires a degree of sophistication. Finally, using several analysts reduces an individual bias in interpreting content; inter-rater agreement can then be calculated with Cohen’s kappa or similar metrics.

After assessing the objectivity of the content, we turn to the source. Measurement of source credibility is important in both validating prior findings as well as understanding why the (potential) bias takes place.

3. Source credibility

  • individual political views (identify)
  • organizational political affiliation (identify)
  • reputation (sample)

This dimensions measures why the media outlet reports the way it does. If individual and organizational affiliations are not made clear in the reportage, the analyst needs to do work to discover them. In addition, the audience has shaped a perception of bias based on historical exposure to the media outlet — running a properly sampled survey can provide support information for conclusions of the objectivity study.

How to prevent media bias?

The work of journalists is sometimes compared to that of a scientist: in both professions, one needs curiosity, criticality, ability to observe, and objectivity. However, whereas scientists mostly report dull findings, reporters are much more pressured to write sexy, entertaining stories. This leads into the the problem of sense-making, i.e. reporters create a coherent story with a clear message, instead showing the messy reality. The sense-making bias in itself favors media bias, because creating a narrative forces one to be selective of what to include and what to exclude. As long as there is this desire for simple narratives, coverage of complex topics cannot be entirely objective. We may, however, mitigate this effect by upholding certain principles.

I suggest three principles for the media to uphold in their coverage of topics.

  • criticality
  • balance
  • objectivity
  • independence

First, the media should have a critical stance to its object of reportage. Instead of accepting the piece of information they receive as truth, they should push to ask hard questions. But that should be done in a balanced way – for example, in a presidential race, both candidates should get an equal amount of “tough” questions. Furthermore, journalists should not absorb any “truths”, beliefs or presumptions that affect in their treatment of a topic. Since every journalist is a human being, this requirement is quite an idealistic one; but the effect of personal preferences or those imposed by the social environment should in any case be mitigated. The goal of objectivity should be cherished, even if the outcome is in conflict with one’s personal beliefs. Finally, the media should be independent. Both in that it is not being dictated by any interest group, public or private, on what to report, but also in that it is not expressing or committing into a political affiliation. Much like church and state are kept separate according to Locke’s social contract as well as Jefferson’s constitutional ideas, the press and the state should be separated. This rule should apply to both publicly and privately funded media outlets.

Conclusion

The status of the media is precious. They have an enormous power over the opinions of the citizens. However, this is conditional power; should they lose objectivity, they’d also lose the influence, as people turn to alternative sources of information. I have presented that a major root cause of the problem is the media’s inability to detect its own bias. Through better detection and measurement of bias, corrective action can be taken. But since those corrective actions are conditioned to willingness to be objective, a willingness many media outlets are not signalling, the measurement in itself is not adequate in solving the larger problem. At a larger scale, I have proposed there be a separation of media and politics, which prevents by law any media outlet to take a political side. Such legislation is likely to increase objectivity and decrease the harmful polarization that the current partisan-based media environment constantly feeds into.

Overall, there should be some serious discussion on what the role of media in the society should be. In addition, attention to journalistic education and upholding of journalistic ethics should be paid. If the industry is not able to monitor itself, it is upon the society to introduce such regulation that the media will not abuse its power but remains objective. I have suggested the media and related stakeholders provide information on potential bias. I have also suggested new measures for bias that consider both the inclusion and exclusion of information. The measurement of inclusion can be done by analyzing news stories for common keywords and themes. If the analyst has an a prior framework of topics/themes/stories he or she considers as reference, it can be then concluded how well the media covers those themes by classifying the material accordingly. Such analysis would also reveal what is not being reported, an important distinction that is often not taken into account.

Joni

Defining SMQs: Strategic Marketing Questions

english

Introduction

Too often, marketing is thought of being advertising and nothing more. However, already Levitt (1960) and Kotler (1970) established that marketing is a strategic priority. Many organizations, perhaps due to lack of marketers in their executive boards, have since forgotten this imperative.

Another reason for decreased importance of marketing is due to marketing scholars pushing the idea that “everything is marketing” which leads to decay of the marketing concept – if it is everything, it is nothing.

Nevertheless, if we reject the omni-marketing concept and return to the useful way of perceiving marketing, we observe the linkage between marketing and strategy.

Basic questions

Tania Fowler wrote a great piece on marketing, citing some ideas of Professor Roger Martin’s HBR article (2014). Drawing from that article, the basic strategic marketing questions are:

  • Who are our customers? (segmentation)
  • Why do they care about our product? (USPs/value propositions/benefits)
  • How are their needs and desires evolving? (predictive insight)
  • What potential customers exist and why aren’t we reaching them? (market potential)

This is a good start, but we need to expand the list of questions. Borrowing from Osterwalder (2009) and McCarthy (1960), let’s apply BMC (9 dimensions of a business model) and 4P marketing mix thinking (Product, Place, Promotion, Price).

Business Model Canvas approach

This leads to the following set of questions:

  • What is the problem we are solving?
  • What are our current revenue models? (monetization)
  • How good are they from customer perspective? (consumer behavior)
  • What is our current pricing strategy? (Kotler’s pricing strategies)
  • How suitable is our pricing to customers? (compared to perceived value)
  • How profitable is our current pricing?
  • How competitive is our current pricing?
  • How could our pricing be improved?
  • Where are we distributing the product/solution?
  • Is this where customers buy similar products/solutions?
  • What are our potential revenue models?
  • Who are our potential partners? Why? (nature of win-win)

Basically, each question can be presented as a question of “now” and “future”, whereupon we can identify strategic gaps. Strategy is a lot about seeing one step ahead — the thing is, foresight should be based on some kind of realism, or else fallacies take the place of rationality. Another point from marketing and startup literature is that people are not buying products, but solutions (solution-based selling, product-market fit, etc.) Someone said the same thing about brands, but I think solution is more accurate in the strategic context.

Adding competitors and positioning

The major downside of BMC and 4P thinking from strategic perspective is their oversight of competition. Therefore, borrowing from Ries and Trout (1972) and Porter (1980), we add these questions:

  • Who are our direct competitors? (substitutes)
  • Who are our indirect competitors? (cross-verticality, e.g. Google challenging media companies)
  • How are we different from competitors? (value proposition matrix)
  • Do our differentiating factors truly matter to the customers? (reality check)
  • How do we communicate our main benefits to customers? (message)
  • How is our brand positioned in the minds of the customers? (positioning)
  • Are there other products customers need to solve their problem? What are they? (complements)

Defining the competitive advantage, or critical success factors (CSFs), leads into natural linkage to resources, as we need to ask what are the resources we need to execute, and how to acquire and commit those resources (often human capital).

Resource-based view

Therefore, I’m turning to resource-based thinking in asking:

  • What are our current resources?
  • What are the resources we need to be competitive? (VRIN framework)
  • How to we acquire those resources? (recruiting, M&As)
  • How do we commit those resources? (leadership, company culture)

Indeed, company culture is a strategic imperative which is often ignored in strategic decision making. Nowadays, perhaps more than ever, great companies are built on talent and competence. Related strategic management literature deals with dynamic capabilities (e.g., Teece, 2007) and resource-based view (RBV) (e.g., Wernerfelt, 1984). In practice, companies like Facebook and Google do everything possible to attract and retain the brightest minds.

Do not forget profitability

Finally, even the dreaded advertising questions have a strategic nature, relating to customer acquisition and loyalty, as well as ROI in regards to both as well as to our offering. Considering this, we add:

  • How much does it cost to acquire a new customer?
  • What are the best channels to acquire new customers?
  • Given the customer acquisition cost (CAC) and customer lifetime value (CLV), are we profitable?
  • How profitable are each products/product categories? (BCG matrix)
  • How can we make customers repeat purchases? (cross-selling, upselling)
  • What are the best channels to encourage repeat purchase?
  • How do we encourage customer loyalty?

As you can see, these questions are of strategic nature, too, because they are directly linked to revenue and customer. After all, business is about creating customers, as stated by Peter Drucker. However, Drucker also maintained that a business with no repeat customers is no business at all. Thus, marketing often focuses on customer acquisition and loyalty.

The full list of strategic marketing questions

Here are the questions in one list:

  1. Who are our customers? (segmentation)
  2. Why do they care about our product? (USPs/value propositions/benefits)
  3. How are their needs and desires evolving? (predictive insight)
  4. What potential customers exist and why aren’t we reaching them? (market potential)
  5. What is the problem we are solving?
  6. What are our current revenue models? (monetization)
  7. How good are they from customer perspective? (consumer behavior)
  8. What is our current pricing strategy? (Kotler’s pricing strategies)
  9. How suitable is our pricing to customers? (compared to perceived value)
  10. How profitable is our current pricing?
  11. How competitive is our current pricing?
  12. How could our pricing be improved?
  13. Where are we distributing the product/solution?
  14. Is this where customers buy similar products/solutions?
  15. What are our potential revenue models?
  16. Who are our potential partners? Why? (nature of win-win)
  17. Who are our direct competitors? (substitutes)
  18. Who are our indirect competitors? (cross-verticality, e.g. Google challenging media companies)
  19. How are we different from competitors? (value proposition matrix)
  20. Do our differentiating factors truly matter to the customers? (reality check)
  21. How do we communicate our main benefits to customers? (message)
  22. How is our brand positioned in the minds of the customers? (positioning)
  23. Are there other products customers need to solve their problem? What are they? (complements)
  24. What are our current resources?
  25. What are the resources we need to be competitive? (VRIN framework)
  26. How to we acquire those resources? (recruiting, M&As)
  27. How do we commit those resources? (leadership, company culture)
  28. How much does it cost to acquire a new customer?
  29. What are the best channels to acquire new customers?
  30. Given the customer acquisition cost (CAC) and customer lifetime value (CLV), are we profitable?
  31. How profitable are each products/product categories? (BCG matrix)
  32. How can we make customers repeat purchases? (cross-selling, upselling)
  33. What are the best channels to encourage repeat purchase?
  34. How do we encourage customer loyalty?

The list should be universally applicable to all companies. But filling in the list is not “oh, let me guess” type of exercise. As you can see, answering to many questions requires customer and competitor insight that, as the startup guru Steve Blank says, needs to be retrieved by getting out of the building. Those activities are time-consuming and costly. But only if the base information is accurate, strategic planning serves a purpose. So don’t fall prey to guesswork fallacy.

Implementing the list

One of the most important things in strategic planning is iteration — it’s not “set and forget”, but “rinse and repeat”. So, asking these questions should be repeated from time to time. However, people tend to forget repetition. That’s why corporations often use consultants — they need fresh eyes to spot opportunities they’re missing due to organizational myopia.

Moreover, communicating the answers across the organization is crucial. Having a shared vision ensures each atomic decision maker is able to act in the best possible way, enabling adaptive or emergent strategy as opposed to planned strategy (Mintzberg, 1978). For this to truly work, customer insight needs to be internalized by everyone in the organization. In other words, strategic information needs to be made transparent (which it is not, in most organizations).

And for the information to translate into action, the organization should be built to be nimble; empowering people, distributing power and reducing unnecessary hierarchy. People are not stupid: give them a vision and your trust, and they will work for a common cause. Keep them in silos and treat them as sub-ordinates, and they become passive employees instead of psychological owners.

Concluding remarks

We can say that marketing is a strategic priority, or that strategic planning depends on the marketing function. Either way, marketing questions are strategic questions. In fact, strategic management and strategic marketing are highly overlapping concepts. Considering both research and practice, their division can be seen artificial and even counter-productive. For example, strategic management scholars and marketing scholars may speak of the same things with different names. The same applies to the relationship between CEOs and marketing executives. Joining forces reduces redundancy and leads to a better future of strategic decision-making.

Joni

Meaningless marketing

english
Meaningless marketing

I’d say 70% of marketing campaigns have little to no real effect. Most certainly they don’t have a positive return in hard currency.

Yet, most marketers spend their time running around, planning all sorts of campaigns and competitions people couldn’t care less of. They are professional producers of spam, where in fact they should be focusing on core of the business: understanding why customers buy, how could they buy more, what sort of products should we make, how can the business model be improved, etc. The wider concept of marketing deals with navigating the current and the future market; it is not about making people buy stuff they don’t need.

To a great extent, I blame the marketing education. In the academia, we don’t really get the real concept of marketing into our students’ minds. Even the students majoring in marketing don’t truly “get” that marketing is not the same as advertising; too often, they have a narrow understanding of it and are then easily molded into the perverse industry standards, ending up in the purgatory of meaningless campaigns while convincing themselves they’re doing something of real value.

But marketing is not about campaigns, and it sure as hell is not about “creating Facebook competitions”. Rather, marketing is a process of continuous improvement of the business. Yes, this includes campaigns because the business cycles in many industries follow seasonal patterns, and we need to communicate outwards. But marketing has so much more to give for strategy, if only marketers would stop wasting their time and instead focus on the essential.

Now, what I wrote here is only based on anecdotal evidence arising from personal observations. It would be interesting, and indeed of great importance, to find out if it’s correct that most marketers are wasting their time on petty campaigns instead of the big picture. This could be done for example by conducting a study that answers the questions:

  1. What do marketers do with their time?
  2. How does that contribute to the bottom line?
  3. Why? (That is, what is the real value created for a) the customer and b) the organization)
  4. How is the value being measured and defended inside the organization?

If nothing else, every marketer should ask themselves those questions.

Joni

Facebook Ads: remember data breakdowns

english

Here’s a small case study.

We observed irrational behavior from Facebook ads. We have two ad versions running; but the one with lower CTR gets a better relevance score and lower CPC.

This seems like an irrational outcome, because in my understanding, CTR as a measure of relevance should be largest impact factor to CPC and Relevance Score.

Figure 1  Aggregate data

So, we dug a little bit futher and did a breakdown of the data. It turns out, the ad version with lower aggregate CTR performs better on mobile. Apparently this adds emphasis to the algorithm’s calculation.

Figure 2  Breakdown data

Lesson learned: Always dig in deeper to understand aggregate numbers. (If you’re interested in learning more about aggregate data problems, do a lookup on “Simpson’s paradox”.)

Joni

On online debates: fundamental differences

english

Back in the day, they knew how to debate.

Introduction. Here’s a thought, or argument: Most online disputes can be traced back to differences of premises. I’m observing this time and time again: two people disagree, but fail to see why. Each party believes they are right, and so they keep on debating; it’s like a never-ending cycle. I propose here that identifying the fundamental difference in their premises could end any debate sooner than later, and therefore save valuable time and energy.

Why does it matter? Due to commonness of this phenomenon, its solution is actually a societal priority — we need to teach people how to debate meaningfully so that they can efficiently reach a mutual agreement either by one of the parties adopting the other one’s argument (the “Gandhi principle”) or quickly identifying the fundamental disagreement in premises, so that the debate does not go on for an unnecessarily long period. In practice, the former seems to be rare — it is more common that people stick to their original point of view rather than “caving in”, as it is falsely perceived. While there may be several reasons for that, including stubborness, one authentic source of disagreement is the fundamental difference in premises, and its recognition is immune to loss of face, stubborness, or other socio-psychological conditions that prevent reconciliation (because it does not require admittance of defeat).

What does that mean? Simply put, people have different premises, emerging from different worldviews and experiences. Given this assumption, every skilled debater should recognize the existence of fundamental difference when in disagreement – they should consider, “okay, where is the other guy coming from?”, i.e. what are his premises? And through that process, present the fundamental difference and thus close the debate.

My point is simple: When tracing the argument back to the premises, for each conflict we can reveal a fundamental disagreement at the premise level.

The good news is that it gives us a reconciliation (and food for though to each, possibly leading into the Gandhi outcome of adopting opposing view when it is judged more credible). When we know there is a fundamental disagreement, we can work together to find it, and consider the finding of it as the end point of the deabte. Debating therefore becomes a task of not proving yourself right, but a task of discovering the root cause for disagreement. I believe this is more effective method for ending debates than the current methods resulting in a lot of unnecessary wasted time and effort.

The bad news is that oftentimes, the premises are either 1) very difficult to change because they are so fundamentally part of one’s beliefs that the individual refuses to alter them, or 2) we don’t know how we should change them because there might not be “better” premises at all, just different ones. Now, of course this argument in itself is based on a premise, that of relativity. But alternatively we could say that some premises are better than others, e.g. given a desirable outcome – but that would be a debate of value subjectivity vs. universality, and as such leads just into a circular debate (which we precisely do not want) because both fundamental premises co-exist.

In many practical political issues the same applies – nobody, not even the so-called experts, can certainly argue for the best scenario or predict the outcomes with a high degree of confidence. This leads to the problem of “many truths” which can be crippling for decision-making and perception of togetherness in a society. But in a situation like that, it is ever more critical to identify the fundamental differences in premises; that kind of transparency enables dispassionate evaluation of their merits and weaknesses and at the same time those of the other party’s thinking process. In a word, it is important for understanding your own thinking (following the old Socratean thought of ‘knowing thyself’) and for understanding the thinking of others.

The hazard of identifying fundamental premise differences is, of course, that it leads into “null result” (nobody wins). Simply put, we admit that there is a difference and perhaps logically draw the conclusion that neither is right, or that each pertains the belief of being right (but understand the logic of the other party). In an otherwise non-reconcialiable scenario, this would seem like a decent compromise, but it is also prohibitive if and when participants perceive the debate as competition. Instead, it should be perceived as co-creation: working together in a systematic way to exhaust each other’s arguments and thus derive the fundamental difference in premises.

Conclusion. In this post-modern era where 1) values and worldviews are more fragmented than ever, and 2) online discussions are commonplace thanks to social media, the number of argumentation conflicts is inherently very high. In fact, it is more likely to see conflict than agreement due to all this diversity. People naturally have different premises, emerging from idiosyncratic worldviews and experiences, and therefore the emergence of conflicting arguments can be seen as the new norm in a high-frequency communication environments such as social networks. People alleviate this effect by grouping with likeminded individuals which may lead into assuming more extreme positions than they would otherwise assume.

Education of argumentation theory, logic (philosophy and practice), and empathy is crucial to start solving this condition of disagreement which I think is of permanent nature. Earlier I used the term “skilled debater”. Indeed, debating is a skill. It’s a crucial skill of every citizen. Societies do wrong by giving people voice but not teaching them how to use it. Debating skills are not natural traits people are born with – they are learned skills. While some people are self-learned, it cannot be rationally assumed that the majority of people would learn these skills by themselves. Rather, they need to be educated, in schools at all levels. For example, most university programs are not teaching debating skills in the sense I’m describing here – yet they proclaim to instill critical thinking to their students. The level and the effort is inadequate – the schooling system needs to step up, and make the issue a priority. Otherwise we face another decade or more of ignorance taking over online discussions.

Joni

What is a “neutral algorithm”?

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What is a “neutral algorithm”?

1. Introduction

Earlier today, I had a brief exchange of tweets with @jonathanstray about algorithms.

It started from his tweet:

Perhaps the biggest technical problem in making fair algorithms is this: if they are designed to learn what humans do, they will.

To which I replied:

Yes, and that’s why learning is not the way to go. “Fair” should not be goal, is inherently subjective. “Objective” is better

Then he wrote:

lots of things that are really important to society are in no way objective, though. Really the only exception is prediction.

And I wrote:

True, but I think algorithms should be as neutral (objective) as possible. They should be decision aids for humans.

And he answered:

what does “neutral” mean though?

After which I decided to write a post about it, since the idea is challenging to explain in 140 characters.

2. Definition

So, what is a neutral algorithm? I would define it like this:

“A neutral algorithm is a decision-making program whose operating principles are minimally inflenced by values or opinions of its creators.” [1]

An example of a neutral algorithm is a standard ad optimization algorithm: it gets to decide whether to show Ad1, Ad2, or Ad3. As opposed to asking from designers or corporate management which ad to display, it makes the decision based on objective measures, such as click-through rate (CTR).

A treatment that all ads (read: content, users) get is fair – they are diffused based on their merits (measured objectively by an unambiguous metric), not based on favoritism of any sort.

3. Foundations

The roots of algorithm neutrality stem from freedom of speech and net neutrality [2]. No outsiders can impose their values and opinions (e.g., censoring politically sensitive content) and interfere with the operating principles of the algorithm. Instead of being influenced by external manipulation, the decision making of the algorithm is as value-free (neutral) as possible. For example, in the case of social media, it chooses to display information which accurately reflects the sentiment and opinions of the people at a particular point in time.

4. Limitations

Now, I grant there are issues with “freedom”, some of which are considerable. For example, 1) for media, CTR-incentives lead to clickbaiting (alternative goal metrics should be considered), 2) for politicians and electorate, facts can be overshadowed by misinformation and short videos taken out of context to give false impression of individuals; and 3) for regular users, harmful misinformation can spread as a consequnce of neutrality (e.g., anti vaccination propaganda).

Another limitation is legislation – illegal content should be kept out by the algorithm. In this sense, the neutral algorithm needs to adhere to a larger institutional and regulatory context, but given that the laws themselves are “fair” this should impose no fundamental threat to the objective of neutral algorithms: free decision-making and, consequently, freedom of speech.

I wrote more about these issues here [3].

5. Conclusion

Inspite of the aforementioned issues, with a neutral algorithm each media/candidate/user has a level playing field. In time, they must learn to use it to argue in a way that merits the diffusion of their message.

The rest is up to humans – educated people respond to smart content, whereas ignorant people respond to and spread non-sense. A neutral algorithm cannot influence this; it can only honestly display what the state of ignorance/sophistication is in a society. A good example is Microsoft’s infamous bot Tay [4], a machine learning experiment turned bad. The alarming thing about the bot is not that “machines are evil”, but that *humans are evil*; the machine merely reflects that. Hence my original point of curbing human evilness by keeping algorithms free of human values as much as possible.

Perhaps in the future an algorithm could figuratively spoken save us from ourselves, but at the moment that act requires conscious effort from us humans. We need to make critical decisions based on our own judgment, instead of outsourcing ethically difficult choices to algorithms. Just as there is separation of church and state, there should be separation of humans and algorithms to the greatest possible extent.

Notes

[1] Initially, I thought about definition that would say “not influenced”, but it is not safe to assume that the subjectivity of its creators
would not in some way be reflected to the algorithm. But “minimal” leads into normative argument that that subjectivity should be mitigated.

[2] Wikipedia (2016): “Net neutrality (…) is the principle that Internet service providers and governments should treat all data on the Internet the same, not discriminating or charging differentially by user, content, site, platform, application, type of attached equipment, or mode of communication.”

[3] Algorithm Neutrality and Bias: How Much Control? <https://www.linkedin.com/pulse/algorithm-neutrality-bias-how-much-control-joni-salminen>

[4] A part of the story is that Tay was trolled heavily and therefore assumed a derogatory way of speech.

Joni

Advertisers actively following “Opportunities” in Google AdWords risk bid wars

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PPC bidding requires strategic thinking.

Introduction. Wow. I was doing some SEM optimization in Google AdWords while a thought struck me. It is this: Advertisers actively following “Opportunities” in AdWords risk bid wars. Why is that? I’ll explain.

Opportunities or not? The “Opportunities” feature proposes bid increases for given keywords, e.g. Week 1: Advertiser A has current bid b_a and is proposed a marginal cost m_a, so the new bid e_a = b_a+m_a. During the same Week 1: Advertiser B, in response to Advertiser A’s acceptance of bid increase, is recommended to maintain his current impression share by increasing his bid b_b to e_b = b_b+m_b. To maintain the impression share balance, Advertiser A is again in the following optimization period (say the optimization cycle is a week, so next week) proposed yet another marginal increase, et cetera.

If we turn m into a multiplier, then the bid will eventually be b_a = (b_a * m_a)^c, where c is the number of optimization cycles. Let’s say AdWords recommends 15% bid increase at each cycle (e.g., 0.20 -> 0.23$ in the 1st cycle); then after five cycles, the keyword bid has doubled compared to the baseline (illustrated in the picture).

Figure 1   Compounding bid increases

Alluring simplicity. Bidding wars were always a possible scenario in PPC advertising – however, the real issues here is simplicity. The improved “Opportunities” feature gives much better recommendations to advertisers than earlier version, which increases its usage and more easily leads into “lightly made” acceptance of bid increases that Google can show to likely maintain a bidder’s current competitive positioning. From auction psychology we know that bidders have a tendency to overbid when put into competitive pressure, and that’s exactly where Google is putting them.

It’s rational, too. I think that more aggressive bidding can easily take place under the increasing usage of “Opportunities”. Basically, the baselines shift at the end of each optimization cycle. The mutual increase of bids (i.e., bid war) is not only a potential outcome of light-headed bidding, but in fact increasing bids is rational as long as keywords still remain profitable. But in either case, economic rents (=excessive profits) will be competed away.

Conclusion. Most likely Google advertising will continue converging into a perfect market, where it is harder and harder for individual advertisers to extract rents, especially in long-term competition. “Opportunities” is one way of making auctions more transparent and encourage more aggressive bidding behavior. It would be interesting to examine if careless bidding is associated with the use of “Opportunities” (i.e., psychological aspect), and also if Google shows more recommendations to increase than decrease bids (i.e., opportunistic recommendations).

Joni

Belief systems and human action

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What people believe, sometimes because real because of that.

1. Introduction. People are driven by beliefs and assumptions. We all make assumptions and use simplified thinking to cope with complexities of daily life. These include stereotypes, heuristical decision-making, and many forms of cognitive biases we’re all subject to. Because information individuals have is inherently limited as are their cognitive capabilities, our way of rational thinking is naturally bounded (Simon, 1956).

2. Belief systems. I want to talk about what I call “belief systems”. They can be defined as a form of shared thinking by a community or a niche of people. Some general characterizations follow. First, belief systems are characterized by common language (vocabulary) and shared way of thinking. Sociologists could define them as communities or sub-cultures, but I’m not using that term because it is usually associated with shared norms and values which do not matter in the context I refer to in this post.

3. Advantages and disadvantages. Second, the main advantage of belief systems is efficient communication, because all members share the belief system and are therefore privy to the meaning of specific terms and concepts. The main disadvantage of belief systems is the so-called tunnel vision which restricts the members adopting a belief system to seek or accept alternative ways of thinking. Both the main advantage and the main disadvantage result from the same principle: the necessity of simplicity. What I mean by that is that if a belief system is not parsimonious enough, it is not effective in communication but might escape tunnel vision (and vice versa).

4. Adoption of belief systems. For a belief system to spread, it is subject to the laws of network diffusion (Katz & Shapiro, 1985). The more people have adopted a belief system, the more valuable it becomes for an individual user. This encourages further adoption as a form of virtuous cycle. Simplicity enhances diffusion – a complex system is most likely not adopted by a critical mass of people. “Critical mass” refers here to the number of people sharing the belief system needed for additional members to adopt a belief system. Although this may not be any single number since the utility functions controlling the adoption are not uniformly distributed among individuals; there is an underlying assumption that belief systems are social by nature. If not enough people adopt a belief system, it is not remarkable enough to drive human action at a meaningful scale.

5. Understanding. Belief systems are intangible and unobservable by any direct means, but they are “real” is social sense of the word. They are social objects or constructs that can be scrutinized by using proxies that reflect their existence. The best proxy for this purpose is language. Thus, belief systems can be understood by analyzing language. Language reveals how people think. The use of language (e.g., professional slang) reveals underlying shared assumptions of members adhering to a belief system. An objective examinator would be able to observe and record the members’ use of language, and construct a map of the key concepts and vocabulary, along with their interrelations and underlying assumptions. Through this proceduce, any belief system could be dissected to its fundamental constituents, after which the merits and potential dischords (e.g., biases) could be objectively discussed.

For example, startup enthusiasts talk about “customer development” and “going out of building” as new, revolutionary way of replacing market research, whereas marketing researchers might consider little novelty in these concepts and actually be able to list those and many more market research techniques that would potentially yield a better outcome.

6. Performance. By objective means, a certain belief system might not be superior to another either to be adopted or to perform better. In practice, a belief system can yield high performance rewards either due to 1) additional efficiency in communication, 2) randomity of it working better than other competing solutions, or 3) its heuristical properties that e.g. enhance decision-making speed and/or accuracy. Therefore, beliefs systems might not need to be theoretically optimal solutions to yield a practically useful outcome.

7. Changing belief system. Moreover, belief systems are often unconcious. Consider the capitalistic belief system, or socialist belief system. Both drive the thinking of individuals to an enormous extent. Once a belief system is adopted, it is difficult to learn away. Getting rid of a belief system requires considerable cognitive effort, a sort of re-programming. An individual needs to be aware of the properties and assumptions of his belief system, and then want to change them e.g. by for looking counter-evidence. It is a psychological process equivalent to learning or “unlearning”.

8. Conclusion. People operate based on belief systems. Belief systems can be understood by analyzing language. Language reveals how people think. The use of language (e.g., professional slang) reveals underlying shared assumptions of a belief system. Belief systems produce efficiency gains for communication but simultaneously hinder consideration of possibly better alternatives. A belief system needs to be simple enough to be useful, people readily absorb it and do not question the assumptions thereafter. Changing belief systems is possible but requires active effort for a period of time.

References

Katz, M. L., & Shapiro, C. (1985). Network Externalities, Competition, and Compatibility. The American Economic Review, 75(3), 424–440.

Simon, H. A. (1956). Rational choice and the structure of the environment. Psychological Review, 63(2), 129–38.

Joni

Digital marketing in China: search-engine marketing (SEM) on Baidu

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Digital marketing in China: search-engine marketing (SEM) on Baidu

Introduction

China is an enormous market, amounting to 1.3 billion people and growing. Out of all the BRIC markets, China is the furthest in the adoption of technology and digital platforms, especially smartphones and applications.

Perhaps the most known example of Chinese digital platforms in the West is Alibaba, the ecommerce giant with market cap of over 200 $bn. Through Ali Express, Western consumers can order Chinese products – but also Western companies can use the marketplace to sell their products to Chinese consumers. However, this blog post is about Baidu, the Chinese equivalent to Google.

About Baidu

Baidu was founded in 2000, almost at the same time as Google (which was
founded in 1998). Google left China in 2010 amidst censorship issues, after which Baidu has solified its position as the most popular search engine in China.

Most likely due to their similar origins, Baidu is much like Google. The user interface and functionalities have borrowed heavily from Google, but Baidu also displays some information differently from Google. An example of Baidu’s search-engine results page (SERP) can be seen below.

Figure 1   Example of Baidu’s SERP

A lot of Chinese use Baidu to search for entertainment instead of information;
Baidu’s search results page support this behavior. In terms of search results, there is active censorship on sensitive topics, but that is not directly influencing most Western companies interested in the Chinese market. Overall, to influence Chinese consumers, it is crucial to have a presence on Baidu — companies not visible on Baidu might not be considered by the Chinese Internet users as esteemed brands at all.

Facts about Baidu

I have collected here some interesting facts about Baidu:

  1. Baidu is the fourth most visited website in the world (Global Rank: 4), and number one in China [1]
  2. Over 6 billion daily searches [2]
  3. 657 million monthly mobile users (December 2015) [3]
  4. 95.9% of the Baidu visits were from mainland China. [4]
  5. Baidu’s share of the global search-engine market is 7.52% [5]
  6. Baidu offers over 100 services, including discussion forums, wiki (Baidu Baike), map service and social network [6]
  7. Most searched themes are film & TV, commodity supply & demand, education, game and travel [7]

The proliferation of Internet users has tremendously influenced Baidu’s usage, as can be seen from the statistics.

How to do digital marketing in Baidu?

Baidu enables three type of digital marketing: 1) search-engine optimization (SEO), 2) search-engine advertising (PPC), and 3) display advertising. Let’s look at these choices.

First, Baidu has a habit of favoring its numerous own properties (such as Baidu News, Zhidao, etc.) over other organic results. Even up to 80% of the first page results is filled by Baidu’s own domains, so search-engine optimization in Baidu is challenging. Second, Baidu has a similar network to GDN (Google Display Network). It includes some 600k+ websites. As always, display networks need to be filtered for ad fraud by using whitelisting and blacklisting techniques. After doing that, display advertising is recommended as an additional tactic to boost search advertising performance.

Indeed, the best way to reach Baidu users is search advertising. The performance of PPC usually exceeds other forms of digital marketing, because ads are shown to the right people at the right time. Advertising in Baidu is a common practice, and Baidu has more than 600,000 registered advertisers. Currently advertiser are especially focusing on mobile users, where Baidu’s market share is up to 90% and where usage is growing the fastest [8].

How does Baidu advertising work?

For an advertiser, Baidu offers similar functionalities than Google. Search-engine advertising, often called PPC (pay-per-click), is possible in Baidu. In this form of advertising, advertisers bid on keywords that represent users’ search queries. When a user makes a particular serch, they are shown text ads from the companies with winning bids. Companies are charged when their ad is clicked.

The following picture shows how ads are displayed on Baidu’s search results page.

Figure 2   Ads on Baidu

As you can see, ads are shown on top of the search results. Organic search results are placed after ads on the main column. On the right column, there is extra “rich” information, much like on Google. The text ads on Baidu’s SERP look like this:

Figure 3   Text ads on Baidu

The ad headlines can have up to 20 Chinese characters or 40 English characters, and the description text up to 100 Chinese characters or 200 English characters. There is also possibility to use video and images in a prominent way. Below is an example of Mercedez Benz’s presence in Baidu search results.


Figure 4   Example of brands presence on Baidu

It can be easily understood that using such formats is highly recommendable for brand advertisers.

How to access Baidu advertising?

Baidu’s search advertising platform is called Phoenix Nest (百度推广). The tools to access accounts include Web interface and Baidu PPC Editor (百度推广助手).

To start Baidu advertising, you will need to create an account. For that, you need to have a Chinese-language website, as well as send Baidu a digital copy business registration certificate issued in your local country. You also need to make a deposit of 6500 yuans, of which 1500 is held by Baidu as a setup fee and the rest is credited to your advertising account. The opening process for Baidu PPC account may take up to two weeks. Depending on your business, you might also need to apply for Chinese ICP license and host the website in mainland China.

Alternatives for Baidu

There are other search providers in China, such as 360 Search and Sogou but with its ~60% market share in search and ~50% of overall online advertising revenue in China, Baidu is the leading player. Additionally, Baidu is likely to remain on top in the near future to its considerable investments on machine learning and artificial intelligence in the fields of image and voice recognition. Currently, some 90% of Chinese Internet users are using Baidu [9]. For a marketer interested in doing digital marketing in China, Baidu should definitely be included in the channel mix.

Other prominent digital marketing channels include Weibo, WeChat, Qihoo 360, and Sogou. For selling consumer products, the best platforms are Taobao and Tmall – many Chinese may skip search engines and directly go to these platforms for their shopping needs. As usually, companies are advised to leverage the power of superplatforms in their marketing and business operations.

Sources

[1] Alexa Siteinfo: Baidu <http://www.alexa.com/siteinfo/baidu.com>
[2] Nine reasons to use Baidu <http://richwaytech.ca/9-reasons-use-baidu-for-sem-china/>
[3] Baidu Fiscal Year 2015 <http://www.prnewswire.com/news-releases/baidu-announces-fourth-quarter-and-fiscal-year-2015-results-300226534.html>
[4] Is Baidu Advertising a Good Way to Reach Chinese Speakers Living in Western Countries? <https://www.nanjingmarketinggroup.com/blog/how-much-baidu-traffic-there-outside-china>
[5] 50+ Amazing Baidu statistics and facts <http://expandedramblings.com/index.php/baidu-stats/>
[6] 10 facts to understand Baidu <http://seoagencychina.com/10-facts-to-understand-the-top-search-engine-baidu/>
[7] What content did Chinese search most in 2013 <https://www.chinainternetwatch.com/6802/what-content-did-chinese-search-most-2013/#ixzz4G59YyMRG>
[8] Baidu controls 91% mobile search market in China <http://www.scmp.com/tech/apps-gaming/article/1854981/baidu-controls-91pc-mobile-search-market-china-smaller-firms>
[9] Baidu Paid Search <http://is.baidu.com/paidsearch.html>