Competition, Community, Transaction Costs

EconTalk Extra
by Amy Willis
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Adam D'Angelo on Knowledge, Ex... Chuck Klosterman on But What I...

knowledge.jpg Is it possible to capture all the world's knowledge in one place, and make it universally shareable? While this seems like a tall order, it's exactly what Adam D'Angelo is trying to do on Quora. This week EconTalk host Russ Roberts sat down with D'Angelo in Quora's offices to talk about the project.

So where do you go to look for answers? Have you ever stumbled across knowledge on the web that changed your life? Should Russ cut the intro to EconTalk??? We'd love to hear your thoughts on these questions and more...So please share your responses in the Comments today!

1. Why are transaction costs such an important concept to Quora's business?

2. BOOK BONUS QUESTION: Is there a concept, such as transaction costs, that you're learned about through EconTalk that's radically changed the way you think about some aspect of your life? If so, share the story with us. We'd like to share some of them in turn, and of course we'll share books with our faves!

3. What are some examples of effective or powerful online communities that you are involved in? What makes them effective compared to others?

4. D'Angelo says his motto/mission (and Quora's) is Share and grow the world's knowledge. What's YOUR motto? Why is that motto reflective of you and/or what you do?

5. D'Angelo says the trend that's most under the tech-radar today is personalization. Do you think the trend he suggests toward ever more specific personalization is positive or negative? Why?

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COMMENTS (7 to date)
Trent writes:

Answering #5....

It's tough to predict positive/negative in the long run; I tend to look at it as tradeoffs. For example, let's say I own shares of stock in 10 companies. A couple of decades ago, to get the prices, I had to look them up in the business section of a newspaper - where I'd also see things like Top 10 tables (e.g. gainers, losers, small cap), data on other stocks (e.g. see a stock paying a big dividend in the table near one of my stocks), stories on companies, etc., etc., etc. So something could catch my eye, causing me to do some research and do something.

Today, I can program a website to display the prices of my 10 stocks in real time, and I can view those prices (and only those prices), whenever I want. While that kind of personalization may be good, the obvious tradeoff is the loss of the before-mentioned information that I'd see on the fly. Also, the ability to get these instant prices could also cause me to make short-term decisions that I wouldn't have otherwise made (those could be good or bad).

Overall, I view personalization in marketing terms - segmenting people into smaller and smaller and smaller groups. I don't know how far you have to go back, but there was a time when you could segment only as far as people who liked sports & people who didn't (ignoring those indifferent). As technology has evolved, segmentation involved. You could drill down to auto racing fans, then to Formula 1 fans, then to Michael Schumacher fans, and on and on to the point where you can now locate Schumacher fans living in Chicago aged 40-49 with incomes> $50,000, etc. Smaller and smaller groups.

As an aside, I always find it fascinating to look at the other likes/dislikes of those in similar groups. For example, how many in that Chicago/Schumacher group also follow EPL soccer and were born in the USA? And that leads you to smaller and smaller groups.

The obvious upside is that you can get information about which you're most interested quickly - I don't have to wade through story after story about Manchester City if I only want to read about Manchester United. But again, the tradeoff is what you're missing by not being exposed to what else is going on.

My guess is that this "silo effect" can also make us more callous - we remain so focused and involved in our own interests, that we can lose empathy by simply not knowing what's going on elsewhere. And when I extend this beyond the sports examples to politics or any controversial subject, the "silo effect" enables people to only read material that they agree with....sometimes to the point where they can't handle any arguments, discussions, difference of opinion...hence the so-called "safe zones" that have popped up at some schools.

Mike writes:

On 5 - Personalization will continue because even if people say they don't want it, they behave like they do. People will buy offers more tailored to them, click on ads that are more appropriate for them (to the extent that anyone clicks on ads) and respond more positively when greeted by name.

On a conscious level I support this. I don't need viagra, so I don't like those ads. I like when the hotel clerk knows my name and preferences. I don't like the false familiarity of email spam artists, but overall personalization is a positive.

I am a little more skeptical when it comes to personalization for minors.

Eric Mustin writes:

I enjoyed this week's episode very much and will try to answer each question briefly.

1. I think transaction costs for Quora, "frictions" as D'Angelo says, are related to user interactions with the application. Quora wants users engaging with the UI, clicking other topics, profiles, searching, rating. Quora's valuation is based on a community that grows in size and devotes longer attention span. The more 'frictionless' the experience is, the more likely one increases the amount of time they spend on the app.

2. Over the years a number of Econtalk episodes have shaped the way I see the world. In particular, some of the views put forward by guests like Laurence Kotlikoff and George Selgin have colored my thoughts on US politics and economic policy. Their outlook may turn out to be very prescient or very wrong, but regardless they espouse minority opinions that I rarely hear, were it not for communities like Econtalk.

3. Stack Overflow has been particularly useful to me. What makes it different than most online social communities is that often the questions and answers are a one to many relationship, where one answer is applicable to many questions. Someone could post a general function which gets reused thousands of times by different people solving different tasks.

4. "Eat, spit, be happy"-David's Sunflower Seeds motto. Self explanatory.

5. Let's say a new business wants to distribute coupons. They don't have an existing customer list, but facebook can make them a list, targeting specific users who personally clicked on coupons in the past. Then, using the personalized information of who from the original list clicked the new business's coupons (and their followup behavior), facebook can retarget an even more personalized audience of look-alike customers for the next batch of Ads/coupons, and it's turtles all the way down. This is an innocuous example of personalization and if that same logic were applied to determine a person's credit rating or insurance cost, it might be a less benign topic to discuss.

Thanks for reading,
Eric

An old man in the sea writes:

It was in the podcast of George Selgin, on the great depression... yes it's an oldie(2015) I've just discovered your podcast, and I've been browsing your archives.

I learnt three things. The meaning between being solvent and being liquid, and their differences... Very important.

However, the most important one, must be how to pronounce Bagehot... I think a whole new world has just open before my 'ears'. Ahahahah... I always thought it was read as 'Baggot'. I'm not a native speaker... at least that's my excuse.

Sid writes:

Answering Q2:

Econtalk has converted me from being a pessimist to a cautious optimist. Most importantly, it has made me a good listener.

Martin writes:

1. Why are transaction costs such an important concept to Quora's business?

I think I may have missed the part about transactions costs in the podcast. If by transactions costs you mean "switching costs" then this is a concept that is very important not just for Quora's business, but also for most contemporary social media applications. In general, the stronger the disincentive to leave the platform (because the accumulation of in-app reputation is hard to acquire, i.e. up-votes, likes, re-tweets, friends, followers, points, etc., the more personalized and engaging the experience becomes for a user because the longer they use the platform the more information Quora can generate about their behavior. As an example, just look at StackOverFlow where programmers are rewarded with points and medals in such a way that they are discouraged from creating new less-anonymous accounts if they flub up on some of their answers. In this way advertisements to these users are more consistent because the website knows what questions they are mainly answering, i.e. in my case I receive advertisements for Java/Android jobs, because I mainly post about Java and Android programming.

2. BOOK BONUS QUESTION: Is there a concept, such as transaction costs, that you're learned about through EconTalk that's radically changed the way you think about some aspect of your life? If so, share the story with us. We'd like to share some of them in turn, and of course we'll share books with our faves!

I've known about EconTalks for a very long time, but for some reason I never got into it. I mainly followed the EconLib blog posts by Arnold Kling, Bryan Caplan. Recently I've become a lot more interested. I think this is because I actually spend a lot more time working than I used to. As a programmer, it's easy for me to get into "flow" while simultaneously listening to something else without dramatically impacting my work productivity in a negative way. I hope to follow along a lot more in the near future. Cheers!

3. What are some examples of effective or powerful online communities that you are involved in? What makes them effective compared to others?

One effective online community that I've found is called Polyvore (for polyester-vore). It's a social network and community of curators who scour the internet for various fashion trends. Users bring together the items they've found and curate them into "sets", which are basically a collection of items that create a "look". Users can share these sets to generate social attention.

Naturally, this is a great place for marketers of fashion boutiques and large retailers alike to show off the dynamic nature of their clothing without having to invest heavily in expensive photo-shoots and runway events. Each set is connected by hyperlink to the various retailers that make them up, and hence the platform servers as a kind of auxiliary marketing arm and hence revenue-driver to the brands that are represented on the application.

I think Polyvore does a really good at maintaining a community culture that is unique among social media applications in that users are generally okay with the fact that they are explicitly acting as marketing conduits for brands and businesses. I hear a lot of complaint about Twitter, for example, where users posts are directly embedded into news articles and are not compensated for them. While Polyvore users aren't paid for their "work", they are rewarded with a ton of benefits, including exclusive early access (and I mean it when I say this is not some small gimmick) to as-yet unreleased fashion lines from some of the world's most notable labels (their users REALLY love this). In some instances, power users are actually flown out to major fashion events worldwide if they reach certain levels of influence within the community.

4. D'Angelo says his motto/mission (and Quora's) is Share and grow the world's knowledge. What's YOUR motto? Why is that motto reflective of you and/or what you do?

I can't quite think of my personal motto at the moment, but one community I founded is Hypercycle (http://www.hypercycle.co). Its mission is to democratize participation in the consumer design process by enabling "fast, accessible, personalized creation" of consumer goods, starting with fashion as our primary market niche. Users can design clothes, select manufacturers, and open their own web stores for others to purchase their creations. I've always loved helping people build things. My first job was as a gardener and landscape architect. I've always enjoyed working with my hands and bringing my artistic vision to life in a very material way. I know other people would do, but sometimes they just don't have the skills or access to important people that could otherwise help them do so. By opening up the design and manufacturing process, I feel like Hypercycle can lower the barriers to entry for designers and would-be brand creators to enter the market and give it a shot for themselves.

5. D'Angelo says the trend that's most under the tech-radar today is personalization. Do you think the trend he suggests toward ever more specific personalization is positive or negative? Why?

More personalization is definitely better for those who want it. The Internet is vast and increasing a lot more complex. If people can find what they're really interested in much faster than they have in the past, then that's a good thing.

It can also be a bad thing if in turn early successful queries continue to make up a larger proportion of those queries' behavioral expectations at future time periods. We may want to find the things that interest us faster, but we may not want to "become" the things that various machine learning algorithms "think" we are. I have heard many people say that we are not "consumption robots", but I think maybe there's a good chance that we are. A while back, Facebook engaged in what turned out to be a highly controversial experiment that actually proved that altering the priority of what you view on your news feed according to the emotional content of those posts and status updates could meaningfully impact your emotional state and mood for weeks to come. See here for the peer-reviewed paper: http://www.pnas.org/content/111/24/8788.full

Another big political challenge for democracies that emerges with the advent of decentralized user data-driven platforms, however, is protecting consumers from the inability to choose between various services if network effects get out of hand.

For some reason, whether natural or not, there is a kind of directionality in these markets that favors the emergence of what appear to be natural monopolies. Whether this is a result of massive preferential attachment driving active users to platforms that build up the strongest switching costs, and as a result, encourage network lock-in, is yet to be proven, but the consequences are already showing: social welfare is not nearly as maximized compared to markets where there are more choices, i.e. restaurants. In some instances a user has to choose between sufficient privacy protocols and having any friends to talk to at all (see the messaging services Telegram and WhatsApp).

People have suggested that socially-driven technology industries are vastly more prone to being upturned compared to other traditional market economies precisely because of the observation that social change is voluminous and abrupt, but do we really know this? It would be precarious to assume that for some reason Facebook was NOT at a significant advantage while making their first investments in virtual reality via the Oculus Rift. Had they not been as large and connected as they were then, would they then not have the leg up they seem to currently have in the next big take-all industry? How long will the returns they've generated from early network effects and subsequent research in artificial intelligence and machine learning be compounded onto themselves? I don't know for sure, but I remain skeptical that these trends are short-term.

Another thing that's clear is that the political interests of lobbies composed of just such companies are perhaps a lot narrower and more aligned than in ages past, which potentially makes their appeals to government a lot more effective.

SaveyourSelf writes:

3. When I was a young man my motto was, “Win.” Win at all costs is probably closer to the truth, though I thought of myself as moral at the time. After college, my motto was, “give back.” I felt fortunate. I’d had a good life. I wanted others to have a good life too. Unfortunately, just giving money, time, goods, services, etc. did not seem to produce for others the high quality of life I’d experienced. I searched around, lost for a while, until I found Econtalk. After several years of education under Russ Roberts and his guests, I learned the value of competition and the meaning of Justice. My motto at present is, “Prosperity for all through universal Justice and Competition.”

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