Incentives are just as dangerous as they are powerful. I have the running theory that most incentives can actually do the exact opposite of the intended goal when executed wrong.
Let’s start with an example to illustrate. You’re in charge of a small company that picks up garbage after events like street fairs and parades. However, you just got an angry call from your customer (the city) that your company has been doing an increasingly poor job and they are threatening to cut your contract.
You can fire and hire people, but ultimately, you or some new manager will need to fix the culture of the team. Aside from the obvious choice of talking to your staff about goals and values, let’s assume that incentivizing performance ends up being the option you go with. It’s time to play with fire.
What are some obvious ways to incentivize good cleaning efforts? There are many, but I’ll focus on a really obvious one for this post: Tie bonuses to volume/weight of trash picked up.
Is this a bad incentive? Not necessarily. But if executed poorly, it can be disasterous.
Which is more important to pick up? The pile of 50 napkins or the four empty soda bottles? Under this solution, people would be incentivized to ignore napkins, ciggarettes, and plastic bags while encouraged to chase after bottles (bonus points for liquid content) and discarded food. In fact, once employees start realizing this, they might even start picking up rocks and dirt instead of actually cleaning — in effect making the situation worse.
The situation above is universal across all industries. In software, the oft cited “Dilbert” situation is when performance gets tied to lines of code written. The point is, any system introduced that attempts to incentivize a certain type of behavior can cause employees to focus on the wrong thing. If you tell your staff that closing bug tickets is tied to bonuses, your entire team will focus on that metric like a laser. This will be good at first until you realize that everybody is spam-fixing the “mispelled text” bug tickets and nobody is bothering with the REAL problems.
This is a random thought that just popped in my head.
With information becoming increasingly available, I’ve been thinking that the head hunting business will go through a major destructive phase in the next few years. There’s two things the Internet changed:
Better distribution of information on job openings
Better distribution of information on candidates
Definition: For those of you who are unaware, head hunters are professionals that search for employees and pair them up with open positions in companies. In a typical scenario, a company will pay a recruiter (head hunter) a fee that equates to 2-3 months of that employee’s yearly salary. Companies pay this because recruiting employees is expensive. I’ve done a lot of hiring in the last few years, and I know how time consuming it is to review hundreds of resumes and then interview. A head hunter is basically an outsourced HR department. Additionally, candidates often approach head hunters who re-post job openings in various job boards.
And there’s a third trend that will come based on increasing information available to the public:
Automation of job and candidate pairing
A long time ago, I was business partners with a man who was formerly a head hunter. I remember him telling me how wonderful the internet made his job. He told me that when he was my age, recruiting meant shaking a lot of hands, memorizing every face and name you ever met, and storing large piles of business cards. For him, recruiting was now about posting jobs on Craigslist and Monster and referring the candidates. To him, he was still the gatekeeper. These days, anybody can be a headhunter with a little Internet know how.
head hunter productivity goes up first, then down (we are in the middle stage now)
However, sites like LinkedIn can change all that. The one true value proposition that head hunters provide is that they serve as match maker. But as more information is available and technology improves, this process should become more and more automated. For example, right now, LinkedIn has job postings. On its own, it’s just a new competitor to Craigslist, but what makes things interesting is that LinkedIn also has the data points to find all of the candidates out there that might fit the job requirements — without anybody lifting a finger.
Right now, the information stream is mono-directional: job postings (and recruiters) broadcast information. The goal is a bi-directional system where seekers fill out their requirements (a.k.a. their resumes) and both sides let the system do the matching. This can only work if both sides have maximum information about the other. Think of it like dating site for job seekers. It’s a hard problem to solve given the time-sensitive nature of job searches, but it’s an inevitable outcome as more and more information centralizes onto the Internet.
(EDIT: also check out this post for information on Annoying Google and Rainbow Google!)
Hello, I’m here to announce two new websites of mine: Epic Google and Weenie Google. They’re extraordinarily simple ideas. Feel free to mischievously make it the home page of your friends.
Unlike the last idea of mine (Google Loco), I made sure these pointed to domains that didn’t have “Google” in them. I did not enjoy the fact that Google blacklisted my Loco domain (A tip for the rest of your parody makers out there)!
For a brief period, the site was down. I was moving to a more permanent host. Special thanks to Brian for hosting my sites all these years. =)
Anyway, yes, I do keep this site in mind. And for any of you paying attention, I hope it’s not the end of the (open source database) world that Oracle bought Sun. I think it’s funny that Oracle just bought Sun for a price that puts MySQL’s value at 1/7th Sun’s value. Maybe instead of buying up MySQL, Sun should have been focusing on their own business strategy. And they did it during the hardest possible economic times. Moronic.
Oh well. As they say, “when the tide goes out, you can see who’s not wearing shorts,” right? I do feel bad for MySQL though. They dodged the Oracle Bullet only to get caught under the Oracle Steamroller.
Everybody, listen. There’s a Web 2.0 bubble right now. I know it’s difficult for some people to acknowledge, and many people may even casually agree with me without actually believing the statement in full. But it’s true, and the quicker you realize this, the better it will be for your pocket books.
Lately, I’ve been doing stock trading, and have come to learn first hand about the energy and commodities bubbles that were slamming the market. And when that thing was going crazy, it helped deflate the banking bubble, which was a direct result of the housing bubble. And in many ways, the housing bubble was a result of the dot-com bubble bursting due to people exiting the stock market in search for a new investment. And everybody in the web industry likes to think they are wise to bubbles because they learned their lesson in the dot-com boom. But it is increasingly evident that this is not the case.
An Example Exercise
The problem here is that people are approaching this with the mind set of “this will be somebody else’s problem after I sell it.” It’s important we try to figure out what happens to the eventual owner of the startup.
Take your favorite Internet 2.0 company. Decide how much you think that company is worth. $5 million? $10 million? $50 million? $500 million? The sky is the limit!
Imagine now that you are going to trade your life savings for a current minority chunk in the company. If the company doubles up, so does your savings, but if it goes under, your savings are wiped out.
Remember that number you threw up there in step #1? You aren’t allowed to cash out ANY PROFITS until the company is sold to a buyer.
Your startup may not sell until it has reported a yearly net revenue of 10% of your purchase price.
That last part is the key because it effectively stops the hot potato game and forces you to examine if the company is truly viable. Some people would accuse that of being an unfair restriction, but I will show you why this is the key part in understanding why there is a 2.0 bubble.
Defining the Bubble
Let’s take a second to define a bubble:
An investment yields a return, much like a chicken can produce eggs, a savings account produces a yield, and a farm produces crop. This return is not always immediate, and is not always in the same terms as the input. Also, it is almost a law that returns are proportional to risk (some investments have negative returns). But ultimately, it is called an investment because it will (usually and) eventually generate more value than what you put in.
Now consider an investment that does not create a return. Such an example would be the web stocks of the dot-com boom. Back then, fundamentals like earnings, operating margins, and profitability were ignored when evaluating a stock. Companies that bled millions of dollars a year saw their stocks rising at record levels. This is because the investment – the stock – was being traded to somebody else for a profit because that next person believed they could trade it for an even higher profit.
A bubble is defined as a trend where merely owning something long enough to sell it is profitable. It is a giant game of hot potato. Everybody is essentially a middle man between the original owner and the eventual owner — adding to the price tag at every step. Eventually, people wise up and no longer want to trade the hot potato, causing the bubble to burst.
And most importantly, let’s define a bursting bubble:
A bubble is defined as bursting when the value of the traded item reverts to its true market value.
Understanding the Exercise
So let’s talk about the exercise again: if you thought the company was worth a paltry $50M, then your assets are stuck inside that stock until the startup can earn $5M in revenue AND be profitable while doing so. Why did I pick such restriction? Because those are reasonable things to assume when buying any other type of company. Why would another company offer to buy the startup if it failed to produce respectable revenues?
Given this extremely reasonable reality-check requirement, would you want to tie your personal investment to the startup being able to produce a profit? If the startup you chose has revenues and is profitable, then this article doesn’t apply to you. =)
Speculation Should Still be Grounded on Fundamentals
People aren’t investing for what 2.0 companies are worth today, it’s all about tomorrow. I agree that it is important that tomorrow’s profits are taken into today’s valuations, BUT isn’t this reasoning eerily similar to the reason people listed as to why they bought over-priced houses and profitless dot-com stocks? Both were purchases made while completely disregarding the fact that the *current* valuation of the items were negative.
But since that day of profitability is so far away into the future, you end up playing a giant game of corporate hot potato. Most people would agree that a profit of 10% is far better than a loss of 90%. So as soon as you find a sucker to pay 10% more than you paid, you bail. And of course that guy who bought your stake is thinking the exact same thing — sell this to somebody else for 10% profit before something bad happens. That’s a bubble, my friends.
In 2001, the bubble was all about going IPO so that the general public could hold the hot potato.
Today, the bubble is all about selling to a big corporate entity that will hold the hot potato.
There is no difference.
If you are currently thinking about entering the 2.0 scene, think carefully about what your end goal is. If it isn’t “to be profitable”, then it’s likely just another bubble startup that will become completely worthless once the bubble pops. And believe me: given our current economy, that bubble is going to pop in the next year or two.
Finally, an extremely interesting speech about bubbles given in 2006 (gets good around part 2):
This is all about obtaining browsing behavior in a long term bid to increase ad efficiency. Nothing else.
It is not about making things more “open”
It is not about making web development easier
It is not about making an online operating system
It is not about competing with Microsoft
It is not about making the Google brand more ubiquitous
It is not about showing ads in new places
If any of these above things happen, they are a (likely planned) side effect. For example, if a particular API makes something easier, that is good because it will encourage other developers to adopt it as well. But as I will explain shortly, the commonly held beliefs about Google doing Good or Google making the web more open are simply not the reason for these initiatives.
For example, if my blog were to use a YouTube embed, it would be possible for Google to read a cookie originally placed on your machine by YouTube and correlate it as traffic coming from this site. This means they can unique track every YouTube video your computer has ever watched since the last time your cleared your cookies. YouTube is just an example because most of Google’s APIs are far less obvious to the end user. For example, the unified AJAX libraries could be used by a good half of the “2.0” web sites out there without impacting performance (and in many cases would make the sites load faster for the end user). But because everything is going through Google, it’s possible (although I’m not saying that are) for them to track which sites you visit.
If this isn’t extremely valuable information, I don’t know what is. Don’t forget that the AdSense API is, in itself, a means for Google to track every website you’ve ever been to that uses AdSense, and for a way for Google to know exactly which type of ads interested you in the past. Once they know what sites you visit, they can surmise what a given site is about, and then determine, for example, what sort of products would interest you.
It’s the classic advertising chicken and egg problem: If I knew what my customers wanted, I could sell it to them, but they won’t tell me.
…And Google found the chicken. For the time being, they haven’t started using this information (at least noticeably), but I am sure they will as market forces move to make competition in that area more necessary.
Say goodbye to privacy. =( Oh wait, I’ve been saying that for quite some time now.
The big news of Friday morning was that Microsoft offered Yahoo $44.6 billion for the company. On a financial level, this is a sweet deal for Yahoo. It’s not the most financially sound investment Microsoft has offered, which is why their stocks dipped 6% on Friday. No reply has been made from Yahoo, but I can definitely see them taking this offer seriously. My thoughts are summed up in three bullet points:
Yahoo’s management will possibly accept the offer since it is so lucrative.
The purchase will piss off some of Yahoo’s top talent and cause them to defect, possibly probably to Google.
The purchase will help Google gain a greater lead during one of the most crucial eras since the Internet began: the rise of mobile computing.
The internal culture of Yahoo is not exactly friendly to Microsoft. Yahoo is seen as an ally to the open source community while Microsoft is exactly the opposite. Yahoo is a major contributor to open source (ex. PHP’s lead developer is on Yahoo’s payroll), has an open philosophy which has shown itself in their JS frameworks, Flickr, Pipes, and various other projects, and is a major user/contributor to the open source stack in general. Microsoft is clearly not on the same page.
I’ve read speculation that the looming recession will cause developers to stick around despite a take over from a boss they don’t like. However, my belief is that great developers aren’t scared to leave since they are in high demand no matter what is going on in the economy. Some of the very best and brightest at Yahoo will leave. Any sort of exodus of major talent would destroy the current internal direction. Worse, some of these great minds would likely go knocking on Google’s doors, which is straight up ironic considering Microsoft’s intentions. This leaves gutted, possibly begrudging or de-motivated teams, recipes for not producing innovation.
Which leads to my final point: Microsoft’s goal is to beat Google by merging with Yahoo’s resources. It is my belief that this move could ultimately prove counterproductive. The integration process of merging departments, axing un-needed employees, changing internal processes, shifting internal priorities, introducing new management, and replacing fleeing key talent will cause major stalls over in Yahoo… At Google’s benefit. Microsoft is no stranger to mergers and acquisitions, but Yahoo would be a major, major purchase with a sizeable employee count. Microsoft will have its hands full for months.
All this is going to happen during a period I consider to be a key moment in the rise of mobile computing. A large chunk of search traffic will begin to come from mobile browsers, and the web will shift to the mobile platform. During such a crucial stage of computing, this sort of disruptive purchase may help Microsoft and Yahoo miss the bus.
So while I wouldn’t be surprised if the floundering leadership at Yahoo took the offer, I also expect this to work out as the most counterproductive and costly purchase in Microsoft’s history.
Google just released a Chart API. It lets you link to a dynamic image which can then be used to generate graphs and charts. The API is amazingly robust. It supports all sorts of charts. It lets you make an image like the one below using a simple URL (see the image URL for an example):
Why is this better than hosted solutions? For 99% of web masters out there, Google’s up-time will beat the pants off of them. There’s really little to no question about the availability of their solution. Not to mention if it’s really an issue, these images could easily be cached by your application after generating them. The biggest draw, of course, is that unlike other hosted solutions, this one doesn’t use proprietary formats (flash), doesn’t introduce security vulnerabilities (for installing some foreign server-side package), and doesn’t add CPU or memory overhead to your application.
“To control and organize the world’s information.” This project is certainly a reflection of their motto.
Apple is finally getting a taste of being popular. This is the same fight Microsoft fights every time they release a new version of windows. One wonders if Apple will continue this fight thinking it can win, or if this fight is really just for show (to its carrier partners) and Apple doesn’t really care.
Either way, the hacked iPhone is so much cooler than an unhacked one thanks to all the customizations you can do to it.