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creative reconstruction

One of the most famous passages in economic thought is Schumpeter’s description of markets as an arena for “creative destruction.” This conjures images of the rust belt with its abandoned factories and warehouses. In the Internet age, I think the story is a bit different. Sure, we have Pets.com and other collateral damage of innovation, but it seems that the Internet allows some firms and brands a bit more flexibility. You have creative reconstruction.

For example, people laugh at MySpace and Friendster for losing their early advantage in social networking to Facebook. It sounds as if these firms became the 21st century equivalent of horse and buggy firms (which is also a myth – these firms didn’t just go bankrupt but slowly morphed and merged with auto makers). But if you actually look, you see that MySpace is attracting a million visitors per month and ranks in the top 500 web sites in the United States. Similarly, Friendster is now a gaming web site with a few million users, mainly from Asia.

Make no mistake, these firms will likely never regain their position of dominance. They are quite close to failure (see here for recent MySpace pessimism). But they still seem to have quite a bit of value, nearly a decade after their collapse. If I told you about a company with a few million visitors, but didn’t tell you the origin, you’d probably be impressed. The lesson I take is that the market can allow opportunities for reconstruction.

50+ chapters of grad skool advice goodness: Grad Skool Rulz/From Black Power 

Written by fabiorojas

August 7, 2014 at 12:01 am

Posted in fabio, markets

nooks and experiences

It was recently announced that Barnes and Noble would spin off the Nook. Despite valiant attempts at penetrating the tablet market, they couldn’t do it. What is less remarked is that Barnes and Noble is actually profitable. Only the digital reader is a money loser. The question is, then, how is a brick and mortar outfit still alive in the age of Amazon and digital books?

My answer: experience. I, too, thought that B&N was done for.  But what I realize is that brick and mortar, in some cases, is an experience. A pleasant place to do things, even if it can be done cheaper online. Think restaurant. B&N, and the now rebounding independent book store sector, are providing reading experiences that people value. When I go to a B&N, I see things for kids, music, and a cafe. And it’s probably the most literary place in most suburbs. So, B&N, you shall live to see another day.

50+ chapters of grad skool advice goodness: Grad Skool Rulz/From Black Power

Written by fabiorojas

July 10, 2014 at 12:01 am

Posted in fabio, markets

the psychology of ivy league grads on wall street

Ezra Klein interviews Kevin Roose, who has a new book about young Ivy League graduates who work on Wall Street. The take home point is simple: people who graduate from competitive schools graduate toward these jobs not because they love business, but because they want security. Wall Street jobs are high paid, require little experience, and have a bit of prestige. On the origins of the short term Wall Street job:

Wall Street invented this new way of recruiting in the early 80s. Before that they hired like any other industry. If you wanted to be a banker you applied for a job at a bank and they hired you or they didn’t. But in the early 80s Goldman Sachs and others figured out they could broaden their net and get lots of really smart people if they made it a temporary position rather than a permanent one.

So they created the two-and-out program. The idea is you’re there for two years and then you move onto something else. That let them attract not just hardcore econ majors but people majoring in other subjects who had a passing interest in finance and didn’t know what else to do. People now think going to a bank for two years will help prepare them for the next thing and keep them from having to make these hard decisions about the rest of their life. It made it like an extension of college. And it was genius. It led to this huge explosion in recruitment and something like a third of Ivy League graduates going to Wall Street.

Of course, it’s a mixed bag for the grads:

EK: So after writing this book, what would you say to a college senior thinking of going to Wall Street?

KR: First I would ask them why they wanted to work in an investment bank. If the answer is “because I’m tremendously in debt and need to pay it out” or “I’ve been reading Barron’s since I was 12 years old and I desperately want to be an investment banker” then those are legitimate reasons. Go ahead. But if it’s just about taking risk off the table and doing the safe prestigious thing, I’d tell them first that it will make them truly miserable, the kind of miserable it could take years to recover from, and that it also no longer has that imprimatur. It can actually hinder you. I’ve spoken to tech recruiters who say they only hire bankers in their first year or two because after that banking ruins them.

EK: How does it ruin them?

KR: It makes them too risk conscious. It gets them used to a standard of lifestyle they may not be able to replicate in any other industry. And it has a deleterious effect on creativity. Of the eight people I followed, a few came out very damaged by the experience. And not in a way a vacation can cure. It’s not about having bags under your eyes. It destroys your ability to think in creative ways about what it means to build something of value. The people I followed would admit they got a lot out of being a banker but I don’t think they’re all that tuned into the ways the experience changed them.

Check it out.

50+ chapters of grad skool advice goodness: From Black Power/Grad Skool Rulz

Written by fabiorojas

May 22, 2014 at 12:01 am

a broken patent system? the case of samsung vs. apple

Vanity Fair has a new article on the Samsung-Apple litigation. Kurt Eichenwald makes the following case about Samsung’s business strategy:

  • Pick a cool area of electronics.
  • Quickly reverse engineer lower quality, low cost versions of the innovators.
  • When sued for copyright or patent infringement, fight non-stop legal battles that only end with last-minute settlements.
  • You win by either (a) grabbing insurmountable market share during the legal battle or (b) punishing small firms with exhausting litigation and high legal fees (Samsung counter-sues almost all plaintiffs).

If this is an accurate account of Samsung’s strategy, it has interesting implications. First, it contradicts resource based value theory in that the firm doesn’t need a monopoly on anything – just the ability to quickly mimic and exploit the system. Second, it suggests that markets are indeed stable in the absence of patents or enforceable intellectual property rights. Samsung has beat up some other firms, but most competitors have survived. Third, it suggests an interesting use of slack resources – throw them at emerging markets. Fourth, it suggests that the patent system is simply an ineffective means of enforcing intellectual property rights when the defendant is sufficiently large.

Strategy scholars and intellectual property gurus – go nuts in the comments.

50+ chapters of grad skool advice goodness: From Black Power/Grad Skool Rulz

Written by fabiorojas

May 8, 2014 at 12:06 am

book spotlight: from social movement to moral market by paul-brian mcinerney

I had the pleasure of reading Paul-Brian McInerney’s book, From Social Movement to Moral Market, as it was being written. It’s a good book that expands on the new sociology of markets, which focuses on how ideas of worth and value influence firms and exchange. The main contribution of McInerney’s book is explaining how one specific movement, the Circuit Riders, innovated the field of IT for non-profits. This is a big area of the  market and it raises a number of issues that are worth discussing.

At first, the Circuit Riders start off as a typical movement.  A small cluster of nerds who have the dream of helping non-profits exploit new information technologies. Later, things get interesting as Microsoft jumps into the fray and creates a hybrid organization that bridges the IT consulting world and the idealistic nerd world. This creates a sort of situation of moral ambivalence where people question the role of various organizations in helping non-profits. Thus, movements create new spaces that have to be negotiated as markets mature and become institutionalized.

The bigger picture is that McInerney’s book makes a strong case that movements are vital actors in society. Not only do they push for political change, but they are responsible for creating markets and organizations. I think research likes this makes the case that studies of social change should more consistently look for movement like actors across different social domains.

50+ chapters of grad skool advice goodness: From Black Power/Grad Skool Rulz

Written by fabiorojas

May 7, 2014 at 12:01 am

orgtheory question of the day: why is blackberry not dead yet?

People keep predicting the death of BlackBerry. And it’s obvious they lost the mobile battle, though the recent phones do have fans and work well. Just too little, too late. So what’s the deal? Is it just the pile of cash? How are they alive after revenue dropped by $1  BILLION?

50+ chapters of grad skool advice goodness: From Black Power/Grad Skool Rulz 

Written by fabiorojas

March 14, 2014 at 12:01 am

why is the asa against public access?

Federal grant agencies have asked people who receive grants to make the results of their work “public access.” In other words, if the public pays for it, the public should get to read it. Turns out that the ASA is against this policy. In a letter dated January 9, 2012 (about two years ago), Sally Hillsman, executive officer of the ASA makes a strong argument against public access. Here is the letter and some key clips. Please read the letter yourself (open_access_hillsman):

It remains unclear why the federal government should spend scarce taxpayer dollars appropriated for scientific research to add to existing dissemination avenues. This is what scientific societies such as the ASA and our private sector publishing partners have done for over a century, and continue to do extremely well today. The national and international marketplace demonstrates that non-­‐profit and profit-­‐making scientific publishers in collaboration with scholarly societies have responded vigorously and competitively to expand access to scientific knowledge as new demands for content and sophisticated communication technologies have emerged. This success suggests that federal science agencies should invest taxpayer dollars in the research itself, especially as federal dollars that support scientific innovation fail to keep up with the pace of research.

And:

There are no empirical studies that I know of which support the notion that free access to the scientific research literature will increase research productivity or economic growth in the United States.

And:

ASA spends nearly $600,000 annually on journal editorial office expenses alone (which does not include administrative costs, printing and mailing expenses, editor honoraria, legal or overhead costs). ASA does not pay peer reviewers, but in return we sacrifice some revenue by a long-­‐standing policy of keeping our university library subscription prices low (averaging well under $300 in 2011) in explicit recognition of the contribution university faculty make as peer reviewers, editors, and editorial board members.

Comments: First, it seems that the main issue in Dr. Hillsman’s response is that they are concerned about the income stream. I think this is a legitimate concern. But it should lead to a few sensible questions. For example, in an age of electronic publishing, why does one need $600,000 for a journal office? At the AJS, of which I was an editor, we had (1) a full time manager (call it $50k), (2) some part time staff ($50k), (3) office space (say $5k month – $60k per year) and toss in $50k for postage, computers, etc. That totals about $210k per year. If we give Andy a nice fat bonus for running the joint ($50k), you get up to $260k. I am not sure why we need to wrack up hundreds of thousands more in administrative costs.

But there are deeper questions. What is preventing the ASR from going all electronic and printing paper versions on demand for a few readers? Or going free access, but having advertisements or the “freemium” model? In other words, this argument seems to be a rear guard defense of an older publishing model, not an attempt to creatively think about how the ASR can be read by the widest audience possible.

Second, I don’t think Dr. Hillsman’s letter gets at the main point – the Federal government, sensibly, doesn’t want the results of funded research to be hidden behind pay walls. The pay wall for ASR may not be a barrier to social scientists who have university accounts, but $300 is a barrier for many other readers. But the Federal government’s argument isn’t directed at the ASA. It’s directed at other publishers who charge thousands of dollars for a journal subscription. If you are a lay person, a poor person, or someone from another country, this is a real barrier.

We are now living in an exciting era of journal publishing. We have traditional models, the egalitarian PLoS One model, and the “up or out” Sociological Science model. I say let us experiment, not drift into rent seeking defenses of a 19th century approach to science.

50+ chapters of grad skool advice goodness: From Black Power/Grad Skool Rulz 

Written by fabiorojas

January 22, 2014 at 12:01 am

Posted in academia, fabio, markets, the man

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