Friday, December 25, 2009

Avoiding wire transfer fees from iTunes Connect

One of the big problems I had with iTunes Connect is that they charge me a wire fee every time I got an international transfer. This meant charges of $13 every month, times four or five for each international zone that hit the minimum.


Snooping around, wire-in charges seems to be pretty standard at banks. That actually seems insane to me, especially if it's a highly automated process, as I suspect the ones iTunes is sending is. While Apple could solve the problem by repatriating all earnings and just doing an EFT, I suspect there are some legal issues with this.

Until then, I have the iTunes payments flowing to my Fidelity MySmartCash account. I talked to them and they do not charge for wire transfers in. I also set up check-writing, so I suppose I will be using that as my account to pay our costs as well.

Sunday, December 20, 2009

Happy Holidays

Apologies for the light posting of late, I've been epically tied up with my full-time job, Moca and Upward Mobility.


My friend Crystal forwarded me this video, and I thought there'd be no better way to wish all the readers here a happy holiday season.



Experience Mobile Mobile from James Théophane Jnr on Vimeo.

Monday, December 7, 2009

I chose AppViz for app store analytics

I posted a couple weeks ago about over-the-top app store analytics players for iTunes Connect. After careful consideration of all the options, I picked AppViz.


I tried AppFigures because I would prefer a SaaS model given all the different terminals I use. It has a lot of potential, but I found it to be someone quirky and buggy. It also doesn't support the monthly financial reports, which I absolutely need.

AppViz only works for the Mac and runs as Desktop software. But I found its reporting to be robust, and at $29.99, there is no limit on apps. Heartbeat and AppFigures essentially charge per app, and when you're like me and have 20+ apps, that gets expensive quickly.


Saturday, November 21, 2009

What you missed at Mobile Monday

Last Mobile Monday that I MCed:



Matt Gross will post the presentations and the winner of Mr. Mobile Monday Social Impact shortly on the Momoboston.com website. I was really impressed by all of the social entrepreneurs that presented. These were really some amazing ideas.

Sunday, November 15, 2009

Mobile Monday - Mobile Phones for Social Impact

I'm MCing tomorrow's event (November 16th) on Mobile Phones for Social Impact at MIT Sloan tomorrow. If you can make it, stop by and say hi.


You can register here:

India Lab Podcast

Here I am talking about our March trip to India working with the Rai Foundation:


Thursday, November 5, 2009

App Store Analytics - A Work in Progress

I've been trying to get more visibility into our apps business. iTunes reporting is pretty lean in terms of cutting the data into information that would actually help you run you business and price your apps.


I found this list of applications - some SaaS, some desktop based that read in the information from the iTunes store and turn it into all sort of meaningful charts. Some of these products look promising, especially Heartbeat and AppFigures. I might trial these products.


The killer app for me though, as a multi-platform publisher (not that we sell a lot on Android or BlackBerry yet), would be one that pulls data from all the app stores. Right now, we have 10 apps approved for the iPhone, 4 on Android Market, 3 on iPhone, 1 published in Airtel's operator market, and 3 in Motorola's upcoming Android app store. We have Palm WebOS in development and we are figuring out our Symbian and Windows strategy. I would pay $40 to $50 a month for something like that, especially if I don't have to deal with slow interfaces for daily reporting (BlackBerry and carrier stores).

Tuesday, November 3, 2009

How big of a turkey do I need for the 14 people?

How big of a turkey do I need for the 14 people (12 adults, 2 children) I'm cooking for for Thanksgiving?

Butterball has the answer. It's 19 pounds.


I'm amazed that even Butterball has mobile tools now.

Sorry for the slow pace of post. I've been working hard at my day job, and we are turning around a lot of Upward Mobility apps. Just submitted our 13th to Apple and have a whole bunch more coming out shortly to service the CompTIA market.

Saturday, October 24, 2009

Moca featured in Ashoka

Moca featured in Ashoka today:

http://tech.ashoka.org/moca_mobile_health

And they only know the beginning of it. I'm working on something that I think will blow the doors off on tele-health.

Tuesday, October 13, 2009

Google Android App Discoverability is Dreadful

I just got a G1 today and I kind of wish I hadn't. I'd used various units for testing but never searched Android Market for my apps until I got my own phone today.

I have an app called PMConcepts - PMP Prep on the Android store.

Yet when you type in PMConcepts or PMP, Android Market says there are zero matches. I think I am going to pull my hair out. This platform has so much potential for developers, help us unlock it!

Saturday, October 10, 2009

Google Android's multiple screen size support strategy

Looks like this Android's strategy to support multiple screensizes on different OEM phones....





Hello,

We're writing to inform you about a couple changes to Android Market that
require your attention.

First, we have added the ability to target applications by carrier in all
countries. For example, if you are showing your app in the United States,
you can now choose among Sprint, T-Mobile, and Verizon Wireless. If your
apps are intended for users of specific carriers, please go to the Android
Market developer website at http://market.android.com/publish (in the
Publishing Options section under Locations) and target your applications
to those carriers accordingly.

Second, Android Market will soon be available on devices with different
screen sizes. Until now, Android devices have only had "normal"-sized
screens, e.g., HVGA (320x480). The latest platform release, Android 1.6,
expands support for upcoming devices that cover three different screen
sizes: small, normal, and large. Please note that Android Market will
allow apps built with the Android 1.5 SDK (or lower) to show only on
normal- and large-screened devices. Android Market will allow apps built
with the Android 1.6 SDK to show on all three screen sizes. Therefore,
you will need to upgrade your app to Android 1.6 if you want it to also
show on small screen devices that will launch in the coming weeks. For
complete details on Android's support for different screen sizes and the
implications for your apps, we strongly recommend that you read the
Android Developers Blogpost at
http://android-developers.blogspot.com/2009/10/support-for-additional-screen.html.

Thanks, and we look forward to continue working with you on Android
Market.

Sincerely,
The Android Market Team

Thursday, October 8, 2009

What I worked on this summer...

This was the video Nicole Prowell did for the Moca's entry in the finals of the Lien i3 Challenge. I think it does a great job explaining why our solution to the rural tele-health problem is both compelling and important. We're waiting to hear whether we won or not. You'll notice I'm not in any of the shots. That's because I took most of the video. Let's just say Nicole is an amazing editor.



Moca Lien i3 video from nextlab on Vimeo.

Monday, September 21, 2009

An iPhone app to help students get a job in strategy consulting

Every year around this time, the insanity starts for MBAs (and undergrads) trying to get consulting jobs and internships. People are chasing their dream job at McKinsey, Bain, BCG, or a boutique in the field of interest. It's kind of a wild process, with single case interviews and single questions in interviews determining where you end up. Having been through this a few times, I learned some of the ins and outs. It's a stressful process, and one where every edge counts.

I spent part of my summer before starting my full-time consulting job developing a iPhone/iPod touch app for strategy consulting case interview prep using my mobile apps company as a platform. It's now available on the iTunes store. It was more of a pet project than anything else.

I did it mainly by asking myself what type of review would be a helpful supplement to my case preparations. In the end, I settled on a combination of math, estimating and strategy questions. I ended up hiring a PhD in education to write some math questions, and writing most of the strategy questions myself. It was originally going to be around 100 questions, but I got so into I ended up doing 138.

I noticed that a lot of MBAs do have smart phones, and thought that they might want to take advantage of some of their downtime commuting or between classes to get that little extra edge. I see a lot of people on iPhones between classes (and sometimes flagrantly violating Sloan professional standards in a really boring class, ha ha).



Sunday, September 20, 2009

Life Lessons from an Insane Water Bottle

While I was in Manila, I bought a water bottle at Robinson's Department Store. I bought it because I liked the color, but later in the day, I actually read the inspirational slogans written on it. Unfortunately, it was really crappy and partially melted in the dishwasher. Before I toss it, I decided to type up the advice for posterity sake.


My personal favorite:

Children are the orgasm of life. Just like you did not know what an orgasm was before you had one, nature does not let you know how great children are until you actually have them.

Do one thing a day that scares you.

Observe a plant before and after watering and relate those benefits to your body and brain.

That which matters the least should never give way to that which matters the most.

Stress is related to 99% of all illness.

Take various vitamins. You never know what small mineral can eliminate the bottleneck to everlasting health.

Life is full of setbacks. (Gee...thanks...)

Your outlook on life is a direct reflection of how much you like yourself.

The world is changing at such a rapid rate that waiting to implement changes will leave you 2 steps behind.

Friends are more important than money.

Breathe deeply and appreciate the moment. Living in the moment could be the meaning of life.

Listen, listen, listen, and then ask strategic questions.

Do it now, do it now, do it now.

Write down your short and long-term GOALS four times a year. Two personal, two business, two health for the next 2, 5, and 10 years. Goal setting triggers your subconscious computer.

Move your body and your heart will follow.

Friends are more important than money.

Your outlook on life is a direct reflection of how much you like yourself.

Wake up and realize you are surrounded by amazing friends.

Don't trust that in old age a pension will be enough.

Drink fresh water and as much water as you can. Water flushes unwanted toxins from your body and keeps your brain sharp.

Creativity is maximized when you're living in the moment.

Nature wants us to be mediocre because we have a greater chance to survive and reproduce. Mediocre is as close to the bottom as it is to the top and will give you a lousy life.

Jealousy works the opposite way you want it to.

Communication is complicated. We are all raised in a different family with slightly different definitions of every word. An agreement is only an agreement if each party knows the conditions for satisfaction and time is set for satisfaction to occur.

Jealousy works the opposite way you want it to.

Dance, sing, floss and travel.


Wednesday, September 16, 2009

Google announces changes to Android Market app store

Google/Android announced today that there will be some major improvements to the Android Market app store. Thank god. I recently posted about some desired improvement to help us sell our value-added paid educational apps.


Meanwhile, here I'm glad to report that ChemGuru for the SAT II Subject Test for the iPhone is getting some interest. Which is good, because we haven't had much luck on the Android front.


Monday, September 7, 2009

Five quick ways to improve Android Market for developers of paid apps

The main problem I am finding is that we put a lot of money and time at my educational apps company into creating a differentiated, high quality product for the Android Market and we don't have any of the tools necessary to market it. The iTunes store does a lot of the marketing for us, and allows me to do the rest of it.

I know Android is open-source, and Google doesn't take 30% of our earnings. But the store is going to end up being filled with largely freebie junk if Android Market doesn't help folks like us who want to create value-added products to actually sell it. Our iPhone app is outselling our Android app by about 75:1.

If there were 5 things I could suggest:

1) No search engine for apps on the web. You have to use Cyrket, which is a nice mash-up site, but even then, with the short descriptions, it's hard for the user to tell what's good and what isn't.

2) There is no education category. There is a lot of demand out there for educational apps, for all age groups. We specifically make educational apps, so this hurts us. It's better to be more specific with the categories than less, IMHO.

3) No direct link available to my app as far as I can find, so we can’t link to it from our website. We’d like to market our product but all our marketing just says to search Android Market on your phone for .

4) The permitted description length is 325 characters, which is too few characters. I can’t describe my product in that few characters. It's 4,000 in the iPhone appstore. This makes it hard for me to describe my differentiated product and all of its feature.

5) No key words section to help users find what they are looking for and to help us reach users who are looking for the product.

Feel free to add suggestions in the comments section!

Thursday, August 27, 2009

Should I go for the full-size or the premium?

The upgrade seems a tad steep, no?


Friday, August 21, 2009

Wedding Ripoff at Anthony's Pier 4

Go to http://www.pier4.com/anthonys.cfm
Click on Banquets, and then click on Dinner Buffet.
Then click on Banquets again, and then click on Wedding Buffet.
I hate this whole process.

Wednesday, August 19, 2009

Gripes with Android Market

Gripes with Google's Android Market:


1) No search engine for apps on the site.
2) No key words section.
3) There is no education category!
4) No direct link available to my app as far as I can see.
5) The permitted description length is 325 characters, which is ridiculously few. I have no idea how I can describe my product in that few characters. It's 4,000 in the iPhone appstore.

Ugh, hopefully this will improve soon. Otherwise, it's hard to articulate that this is a clearly differentiated product.

Wednesday, August 12, 2009

Meeting with my mobile developers in Vietnam


Entrepreneurship most recently took me to Vietnam, where I met with the developers for Upward Mobility. There I tested the Android products that we are going to release in the next month, and plotted strategy for the next six months. They also showed me a good time, taking me out for some really good pho and recommending tours to the Cu Chi Tunnels and Mekong Delta.

I am really happy with these guys. I have worked with a lot of offshore developers, and I have been impressed by their attention to detail in the requirements gathering, design and testing phases.

Our first product, PMConcepts, a project management education app for the iPhone is selling well. Next up is ChemGuru for the iPhone, which is a Chemistry SAT II application. That one awaits approval.

Here I am meeting with An Mai, President of IMT. I am happy to put anyone who is doing mobile development in touch with these guys as I am sure they would do a good job for you. Shoot me an e-mail through my LinkedIn profile.





MIT Sloan Podcast on my G-Lab GHD Project

If you want to hear about the project I worked on in Tanzania in January as part of MIT Sloan's G-Lab Global Health program, MIT put together a really good podcast.

http://mitsloan.mit.edu/newsroom/podcasts.php#tanzania

Tuesday, August 11, 2009

Why tele-health?

A video that I took while in Basco, Batanes in the Philippines. It's a reminder of why I'm working hard on the Moca project to bring health care to rural areas.



Moca Summer 2009 - Testimonial from nextlab on Vimeo.

Wednesday, August 5, 2009

Ken Gergen and others on social networks

My college advisor Ken Gergen from Swarthmore's psychology department, talks in this USA today article about the "absent presence" (feeling connected with people through Twitter and the present absence (thumbing away on your iPhone at dinner).


As post-modernists, we're obligated to say that humans are becoming closer to cyborgs. A lot of things are written along these lines, and it's rare I even bother reading them anymore. If nothing else though, they're a good reminder that you need to put effort into making quality human connections.

My recent engagement got me thinking a lot about this. I'm not a phone person, and I have a pretty spread out network. It seems sometimes that I've traded depth of relationships for many less intimate ones. Part of this is my extensive travel, but it's also my own comfort with updating everyone through Twitter or Facebook than calling people. I rarely use more than one-third of the 450 minutes I get from AT&T.

Being uber-connected not a bad thing though, right? How else would I manage my network of 897 quality friends on Facebook?

Right. Time to pick up the phone, reach out and touch some old friends.

Thursday, July 30, 2009

The pros and cons of syndicating a venture investment

I wrote this small piece about the costs and benefits of syndication awhile back for something else, but never posted it. I thought it might be useful to some entreprenuers thinking about syndication. I've been working on a project to raise some funding for a health care IT startup and we're looking at syndicating it. Syndication is when a group of venture capitalists or other investors each put in a portion of the money required to fund a business.

What are the advantages and disadvantages of syndicating a venture investment?

Advantages of Syndication
  • Gives entrepreneur more leverage and access to capital in event of another round needing to be raised (for example, a bridge round can now easily be shopped to different members of the syndicate) and more stakeholders whose interests lie in the continuation of the company.
  • It is much easier to do another series (in this case it would be C or a bridge) with an investor that is already involved. The due diligence is less as the investor is already familiar with the inner workings of the company.
  • Multiple good VC brands behind your company helps affirm your positioning in the eyes of the customer
  • Each of the different VCs can open doors to customer acquisition
  • Multiple resources such as people, advice, counsel and guidance
  • For VCs, shares risks and allows spreading money over more companies; For entrepreneur may diversify future funding streams if another round needs to be raised

Disadvantages of Syndication

  • Multiple resources as advice, counsel and guidance can mean too many voices in management’s ear
  • Different members of the syndicate may want control or seats on the board, which may be difficult for the CEO to manage. We saw this in one of the VC vignettes where VCs each wanted to be on the board and the value they added varied. Yet it is hard for the entrepreneur to handle such delicate matters as they do not want to offend major investors.
  • If they both have enough cash, you might want to see them compete for the deal rather than collaborate and pin you down on a valuation.
  • In down times, the different VCs influence one another – A recent speaker at Sloan talked about a situation where a syndicate of VCs had to decide whether or not add money to a company that had run out of cash. One VC refused, and the others fell into line even though they had been positive before.

Tuesday, July 21, 2009

Two tele-health quotes

Here are two quotes from my trip to the Batanes, and why I believe making access to specialist care in rural areas should be a priority:


“Last year, my father had chest pains and needed to see a specialist in Manila.  We sold our cows and our land so he could go.  I had to take leave from my job to accompany him.  It turned out to be pneumonia, which could have been diagnosed here.”

– Basco, Batanes


“Our daughter was born with congenital hernia. Surgery was required, but the doctor was able to do the pre-op session use tele-health.  This saved us an additional trip to Manila or a much longer stay. Our daughter is doing very well now!” 

–Ivana, Batanes


Sunday, July 19, 2009

Calculating Apple's Gross Margins

Good article here on Apple's ridiculously high gross margins.

Social health insurance schemes in the Philippines

The Batanes, the northernmost district of the Philippines has a very interesting form of social health care insurance. It is run by the provincial health organization as a supplemental scheme to the national PhilHealth insurance. Not everyone is mandated to pay as it is an opt-in scheme. Approximately 1,000 out of 3,000 households is enrolled. 92 pesos covers your whole household, including all people who live with you, even if they are say nieces or uncles. PhilHealth only covers the direct relatives.  


That was the price they decided on after a survey found that it would cost 50 pesos a month. Once paid in, the insurance covers up to 5,000 pesos for hospitalization for the whole family. It covers 500 for in-patient care.  

Interestingly, the insurance is largely sold by the Barangay Health Workers (a barangay is a small unit of government, think perhaps a village of a few hundred people.) There are 129 health workers (not bad in a population of 16,000).  

PhilHealth is automatic for those who are formally employed in tax-paying companies and the government, and costs 100 pesos per month. In the informal sector it is opt-in, though in many cases it has been extended by the government as a care-for-indigent people package.
In the Philippines, since PhilHealth is often insufficient, health care for those cannot pay is also covered out of the budgets of the Congressman, the governor and the municipalities.

Thursday, July 9, 2009

A Democrat for Charlie Baker? I'm thinking about it.


I met Charlie Baker, currently CEO of Harvard Pilgrim, and now gubernatorial candidate in Massachusetts last year.  Baker came to speak in Ernest Berndt’s Economics of Health Care class when I was at the MIT Sloan School of Management.  I came away extremely impressed.  

Baker is articulate, intelligent, confident and fully looks the part of governor.  He has an assertiveness to him that Deval Patrick has sorry lacked in the governor’s office.  I was extremely impressed by his understanding of the health care industry, operational insight and financial savvy.  He’s done well running a profitable business in a union controlled industry.  It seems that he’s done a good job working with them to ensure they are creating value.  

I can’t say for sure how these will translate on the campaign trail.  Baker has experience in government, but also understands the needs of private businesses.  More importantly, he knows how to run them, and that might be just what we need in these tough times.

I’m a registered Democrat, but I would consider voting for Charlie Baker in a general election.  I was a very big Mitt Romney fan for his fiscal discipline and the way he provided a balanced and competent voice (a voice of reason is needed in sometimes in what is essentially a one-party state.  I’m really a Massachusetts moderate, but national Democrat.  But I think Massachusetts may need something different.  

Right now I’m rather down on Deval Patrick after supporting him strongly a few years ago.  Even when he spoke at MIT’s graduation, he seemed very out of touch with the needs of the common people. He told one story about his daughter doing a school project about the four seasons about the Four Seasons Hotel.  In another case, he talked about “looking down upon a sea of people” at Barack Obama’s inauguration.  A few of his actions (pay raises for cronies, re-decorating his office) combined with some of the things Patrick says just give me an intuition that he doesn't really get "it", as smart a guy as he is..  

There has been almost no business innovation in solving many our state’s business problems.  For instance, the MBTA.  When I walk into Government Center, I see a Dunkin’ Donuts and a lousy hot dog stand that sells fake Louis Vuitton bags.  In Hong Kong, if you wanted to, you would never have to leave the subway station.  Their stations are full of value-adding business paying rent.  These people watch the station like hawks to make sure it is safe, increasing security without paying for security guards.  Sell advertising on the Mass Pike.

How did Baker do running Harvard Pilgrim?  When he took the company over in 1998, it was coming off a year where it lost $94 million.  Since then, Harvard Pilgrim has had turned into a profitable coming with one of the highest customer satisfaction rates in the country (it's one the US News and World Report award for this 4 years running).

So count me in as someone who will strongly consider Charlie Baker’s candidacy for governor of Massachusetts.  Time will tell how he does on the campaign trail and whether like Bill Weld and Mitt Romney, he can get moderates to break ranks.  If it's innovation, business savvy and job creation that end up being the key points of debate as I suspect, I believe Baker will do very well.  


Sunday, July 5, 2009

Verizon's LTE 4G build and LTE innovation center

Verizon is going with Alcatel-Lucent to build their LTE/4G network.  Also interesting in there is that they are setting up an LTE Innovation Center in Waltham.  For the MIT readers of this blog, there could be some interesting things going on there...I'll try to dig more when I'm back in the US as I have some connections at both companies.


http://www.rcrwireless.com/article/20090302/WIRELESS/902279966/1082/verizon-wireless-lte-award-just-first-round-of-contract-awards

Woohoo! iPhone Project Management Training App Approved!

It took almost two weeks for approval of PMConcepts by the app store, which surprised me, since project management training doesn't exactly seem controversial.  I'm working on an application spec sheet for the PMP/Project Management training app here.  It's been a fun project - I like my developers in Vietnam (going to visit them in a couple weeks in Ho Chi Minh City), and the writers I hired from various sources.  


I'm working a few more projects in this space (risk management, business continuity, interview training, sciences), with the goal of making some of the content eventually available on phones in the developing world to help managers their improve their skills.  We'll see how it goes.  


Here's the message we all wait for:


Dear Double Bottom Line Partners,

The status for the following application has changed to Ready for Sale.

Application Name: PMConcepts - PMP Prep

Application Version Number: 1.0

Application SKU: 200901

Application Apple ID:320539376 PMConcepts - PMP Prep

To make changes to this application or any of its metadata, log in to iTunes Connect and click the Manage Your Applications module.

If you have any questions regarding your application, click Contact Us.

Sincerely,

The iTunes Store Team


Friday, July 3, 2009

Price discrimination to preserve pristine environments and diving in the Batanes

One thing I've noticed about the developing world is that the public doesn't price discriminate enough.

In the Batanes, the airport terminal fee was 20 pesos (about 40 cents) and the environmental preservation fee was 15 pesos (or about 30 cents). Those were the only tourism fees collected by the Batanes, which is a miraculous landscape that absolutely deserve to be preserved.

I had been diving with with Chico Domingo, who is not only the dive instructor, but also the primary tour guide on the island and the director of environmental affairs on the island.

I suggested he price discriminate and raise the fee for non-island residents to at least 200 pesos ($4). That still seems small, given the trash and other environmental harm brought by any tourist (even a responsible eco-tourist). Developing world marine and wildlife sanctuaries are justified in maximizing their revenue to preserve these important habitats.

By the way, diving in the Batanes is great.  Chico is an excellent guide, and there are a lot interesting rock and coral foundations.  Chico took us through some of the caves at the end of our last dive and that was pretty neat.  I saw a giant blue/gray sea snake, a couple giant lobsters, some giant clams at least a meter by a meter in size, a moray eel with a cleaner shrimp in its mouth, two huge manta rays and a pufferfish.  It was also very reasonable in price, substantially less than other dives I've done.  Chico also caught me a gorgeous red snapper with purple dots that turned into a delicious sinigang na isda.

I'll post some pictures of the landscapes shortly as well.

Thursday, June 25, 2009

Greetings from the National Telehealth Center in Manila

I’ve arrived here in Manila, where I’m at the Philippines National Tele-Health Center (NTHC).  Just getting settled in here, but today I sat in on a meeting where doctors used Skype to prosthetics follow-up.  It was a local doctor and a prosthetics specialist here in Manila. 

I’m wondering whether Skype could be enhanced to be more of a tool for global tele-health.  It certainly has most of the telecommunications framework already present.  It’s a nice tool for communication with some (though not ideal) image capability between areas that are wired.  It won’t help us in our project in The Batanes, which is truly rural and has no Internet capability. 

I basically watched a nurse get taken through an entire procedure.  Telehealth might be one of the best ways for Skype to really make a dent into value added corporate services.

I’ll be taking a lot of notes on this trip and posting them intermittently.  It rained in Boston for about 15 straight days before I left.  Now I’ve arrived in Manila and it’s actually pouring due to a typhoon (!).  On Saturday, I head to the Batanes, which is notorious for having terrible whether.  Actually, it is a big part why it has remained so rural there.  Nevertheless, I’m looking forward to a truly unique cultural experience, and getting to know the distinct Ivatan culture there.  

Friday, June 19, 2009

Dynamic pricing in the secondary concert ticket market

Our awesome MIT Sloan pricing professor Catherine Tucker sent us a link about how Ticketmaster/Live Nation is looking at doing more dynamic pricing. It reminded me to post this mini-paper that Andreas Ruggie, Anju Mathew and myself put together.


Dynamic Pricing in the Secondary Ticket Market
By Ted Chan, Anju Mathew and Andreas Ruggie
MIT Sloan School of Management

Introduction

We focus this paper on what we felt was the little understood current world of price trends in the secondary concert ticket market. Since we are all avid music fans in our own lives, we naturally gravitated towards popular music concerts as the chosen medium for our case study.

In capacity-constrained markets, we generally find ticket prices increasing closer to the date of service. A familiar example is air travel. We’ve all seen the price on delta.com suddenly skyrocket to $800 per ticket from Boston to Salt Lake City, simply because it’s the night before the flight and you and your long-distance girlfriend just decided you REALLY need to see each other tomorrow (ahem – frequent personal experience of one of the team members). The reasoning generally provided for this unfortunate phenomenon is market segmentation. While it’s questionable whether or not this trend actually encourages the remaining seats to be sold, however, that is an examination for another day. Here, we were interested in exploring whether or not the secondary concert ticket market follows similar consumer-unfriendly trends (or different consumer-unfriendly trends, as it were...). Ultimately, we sought to determine through our study whether the current practices of concert promoters and ticket vendors are appropriate or not, whether they are based on accurate assumptions about consumer behavior, whether there is any money being left on the table, and finally whether or not anything should be systematically changed.

Methodology

To gather relevant data for our investigation, as case studies we chose to focus on three different recent concerts targeting three different audience demographics at three different types of venues, to see if any similarities arose in terms of price trends. We decided that if we followed the price fluctuations over time leading up to each concert, we could determine 1) if a dynamic pricing model exists, or 2) what an optimal dynamic pricing model should ultimately look like.

The concerts that we felt covered a wide enough user base were the Dave Matthews Band at the Journal Pavilion amphitheatre in Albuquerque, NM on May 5th (what we refer to as “mass market and stoned” at a mid-sized venue), Pete Seeger’s 90th birthday celebration show at Madison Square Garden on May 3rd (“old and used to be stoned” at a large venue), and The Killers’ May 5th performance at the Columbus Lifestyle Arena in Columbus, Ohio (“hip n’ happening” at small venue). Scraping data off of eBay from completed auctions of ticket transactions for these shows, we consolidated our data into the categories of face value, sale price, number of tickets, seating, and days until the concert. We mapped price changes over time.
Findings

Below is a sample of the data we compiled:



As the data for The Killers show indicates, and the data for Pete Seeger and Dave Matthews Band reinforces more extremely, the prices of tickets in the secondary market tends to decrease quite significantly in the days leading up to the actual show. This might seem surprising to some (and indeed opposite to the airline industry), given the horror stories we all hear about mothers not being able to buy Jonas Brothers tickets for their children due to extreme scarcity and exorbitant, escalating costs. We believe that this will only be the case for the few truly high demand concerts.

Thanks to a little research paper the team happened to read about Major League Baseball, however, this trend was exactly what The Price Is Right expected to find.

Major League Baseball

Andrew Sweeting’s paper on “Equilibrium Price Dynamics in Perhishable Goods in Secondary Markets for MLB Tickets” explains why ticket prices tend to decline by economically significant amounts – 25% or more, as the time gets closer to the game. Sweeting’s research supports dynamic pricing models where prices are adjusted over time, especially those where an initial offer price is higher further out and then the tickets are offered at lower prices as the date approaches. This is the case because there are actually buyers who have a higher willingness to pay earlier in the ticket sales process (Sweeting argues this is due to search costs and the risk of the lack of future availability).

Sweeting argues that declining prices can only be the equilibrium outcome if people are willing to purchase early when expected prices are relatively high. Consumers should be able to time their purchases. To support his hypotheses, he looked at two markets. One was StubHub, which has only posted prices, not transaction prices, and “Market 2” which sounded a heck of a lot like eBay to us.

Two arguments for falling seller demand are:

1) Falling Opportunity Cost and Time-Varying Demand/Revenue Elasticities. To keep it simple, this can be summed up as meaning as the ticket date approaches, the chances of making a big kill and finding a high WTP buyer are lower. If tickets are not sold by the end, they are worth nothing.

2) Learning by Sellers – All customers have the same reservation value for the item, about which the seller has prior beliefs. Typical pricing strategy starts high, and if they are not sold, then seller cuts price in 2nd period. If the WTP was higher, they’d all buy and all the tickets would have already sold!

So why do people purchase early if prices will fall? Two reasons: the first is uncertain future availability. A prospective buyer is worried that if they don’t buy now, they will lose out. The second reason is search costs. It costs the consumer time (and time = money) to sit around trying to win an auction to save some money, or they have to log in again later to get tickets.

Implications and Conclusion

We believe these insights can be applied directly to the live music industry to explain our findings; scarcity in this case may in fact be a fabrication, and concert promoters may not actually be as stupid as people think. The question becomes what the implications are for the participants in the value chain.

As far as concert-goers are concerned, patience really is a virtue. It may be the case that the above data, if publicized, could potentially re-shape consumer behavior, as fans would simply know to wait until the last minute to buy their tickets, even for concert by their favorite artist.
On the other hand, concert promoters and secondary ticket vendors seem to have figured out the psychology of their consumers quite adeptly. For the time being, we recommend that they continue to emphasize urgency and lack of availability using whatever “scare tactics” are at their disposal. If we had additional time for a follow-up study, it would be worthwhile to somehow determine whether or not an upwards adjustment to prices late in the game would cannibalize upfront sales and destabilize the equilibrium that concert promoters and ticket vendors seem to have created. But for now, we’re late for a show…

Wednesday, June 17, 2009

How to take an iPhone screenshot

I thought I would post this, since it took me a bit of time to figure it out.


To take a screenshot of your iPhone hold down the Home button and then press the power button.

The screen shot is saved to the Camera Roll under the Photos icon.

Who's the best owner in sports? A friend's argument for Bob Kraft

A friend of mine (he wishes to remain anonymous) wrote this in response to Bill Plaschke's recent column in the New York Times. I thought it was a compelling argument supporting Bob Kraft. Maybe at some point, I'll write mine arguing why I think the Rooneys are the best for what they have done for the NFL as a whole, the sustained success of the Steelers and hiring diversity.

It's an interesting debate. As we've gotten more insight into how these organizations are run the past ten years, we really see how important culture, leadership and decision-making are.

Here's my friends argument for Bob Kraft as the best owner in sports:

Dear Bill-

I read your article in Monday's LA Times where you described Jerry Buss as the "best sports owner of the 21st century" on the heels of the Lakers' fourth championship this decade. I was wondering whether you would at least acknowledge offline, with no risk of offending your LA-based readership, that Bob Kraft of the New England Patriots is roughly on par with Buss for his contributions to the Patriots, the fans of New England, the NFL, and the community.

The bold manner in which Kraft purchased the Patriots from James Orthwein is somewhat comparable to Buss's acquisition of the Lakers and other assets from Jack Kent Cooke. The difference is that the Patriots were a laughingstock franchise with meager economic resources. They had made the playoffs six times in 33 seasons and played in a decrepit stadium 35 miles from Boston that could easily have been confused for a Division II college venue. Kraft initially bought the stadium out of bankruptcy and then leveraged the operating lease to keep Orthwein from moving the team to St. Louis, thereby saving professional football in New England. In the 15 years since he bought the team at what was then deemed to be a ridiculous price, the Patriots have made 5 Super Bowls and 6 AFC title games while becoming one of the most highly valued franchises in the league through a healthy season ticket backlog and resourceful development of ancillary revenue streams. Kraft also self-financed a large portion of the Patriots' new home - Gillette Stadium - to keep the team closer to its Boston-centric fan base and prevent the use of the dreaded personal seat license.

Objectively speaking, the Lakers currently have four titles this century while the Patriots have three, so if that is your sole criteria, then Buss has everybody beat. I would personally argue that NFL championships are more dependent on management strength because of the salary cap and the difficulty of allocating resources across a 53-man roster. These factors make the presence of one or two individual stars much less substantial and place much greater pressure on ownership and management to develop a consistently reliable system for player development and evaluation. As an example, during their 2003 championship season, the Patriots started an astonishing 44 of the 53 players on their roster at one point or another during the season, and won despite having to cut team captain Lawyer Milloy in Week 1 due to salary cap issues. In 2004, they got past a record-setting Colts offense, as well as the 15-1 Steelers and 13-3 Eagles, with a defensive secondary that included converted wide receiver Troy Brown and unknown off-the-street free agents such as Earthwind Moreland and Randall Gay. Imagine if the Lakers had to abruptly cut Derek Fisher at the beginning of the year, or play Sasha Vujacic significant minutes at power forward against the likes of Tim Duncan, Kevin Garnett, etc. I think that the economically-driven system of personnel management which Bill Belichick (whom Kraft and the Patriots gambled a first-round draft pick on despite a failed stint in Cleveland) has installed is simply amazing when you look at the caliber of competition and level of parity in today's NFL.

In addition to on-field performance and team financial success, Kraft has also built a tremendous legacy from a broader sports and community perspective. As chair of the NFL's broadcast committee, he negotiated a record TV deal during better economic times which places the NFL on much better financial ground going forward than its counterpart leagues. He has also launched the league's first Chinese language team web site and donated a great deal of time and money to the development of the sport in Israel. Away from football, Kraft has made substantial contributions to both of his alma maters - Columbia University (of which he was a trustee for 12 years) and Harvard Business School - as well as numerous other educational institutions. Furthermore, both of his sons who work his Kraft Group holding company - Jonathan and Daniel - serve as trustees of their respective alma maters, Williams College (tied as the #1 liberal arts college in the country according to US News) and Tufts University (a top-30 university nationally). In pointing this out, I am not disregarding the contributions that Buss has made to USC and other LA-area institutions, I am simply pointing out an aspect of the Krafts' legacy that sometimes goes unnoticed because it is not sports-related.

In any event, congratulations to LA on a great season. I simply wanted to highlight Mr. Kraft's accomplishments to a reporter on the West Coast who may not be fully aware of everything he has done on and off the field. To put things in an LA perspective, I wonder what type of praise your local media would heap on someone if they bought the Clippers and took them to the NBA Finals 5 times in the next 15 years while also making the team a resounding financial success and maintaining a spotless personal reputation in the community.

Saturday, June 13, 2009

Saad Faazil on pricing iPhone apps

Good article by my Sloan classmate Saad Faazil on pricing a mobile app, something we're keenly focused on as I get ready to launch Upward Mobility.


I still think applications are about who you target. It’s fun to build games, but most casual gamers are inherently cheap and trying to pay as little as possible. I believe there are app buyers out there to be reached who are less price sensitive. They will need to be educatedthrough the regular web though, using channels such as AdWords and a quality website.

Thursday, June 11, 2009

Doesn't Iran's electoral politics sounds similar to the US?

If you read this article about Iran's upcoming election, I'm amazed by how similar the situation is there to the United States circa 2007. There is a heavy urban/rural divide, with hardliners on the right heavily influenced by tradition and religion. Regardless of who wins, let's hope that the youth call for more moderate policy is heard, and that no one decides to take a close victory as a "mandate".



Tuesday, June 9, 2009

Defy conventional wisdom: Boar and hyena shot from Tanzania


This is one of my favorite shots from my travels. It's a warthog (pumba) chasing a hyena away from to Ngorogoro Crater in Tanzania. I think it has an inspiring message as well as being a cool action shot!  Click to see it larger.
Posted by Picasa

Would society be better if software were free? The pros and cons

Spent some time this year thinking about Richard Stallman's philosophy about open source software, and whether the world might be a better place if all software was free.  Being at MIT and working on a open-source software project will do this to you...

Some arguments for why a totally open-source society could work:
  • Programmers can still make money customizing software for customized functions and support services
  • Potentially lower barriers to entry for all businesses; lower costs for entrepreneurship worldwide
  • Could potentially lead to the production of more and better software based on existing software
  • Could help the developing world who cannot afford to pay
  • Quality of software is often low due to “black box” approach; opening code would allow for improvements
  • Creates virtual monopolies or oligopolies that limit benefits to consumers (e.g. Windows)
  • Enforcement is a violation of principles of freedom (the Libertarian argument)
  • Free software promotes unprecedented levels of worldwide collaboration, why stop it
The basic arguments for no way (and you could add ad infinitum to this):
  • Profits incent innovation; no investment in software means a slower rate of technology improvement
  • Software would be developed internally to meet business needs; this would be ineffecient
  • Quality cannot be guaranteed, especially for the non-technical consumer; is it really free if you need to buy support services to get it to work?
  • Software can be donated or provided at a discount for those who need it

Realistically speaking..

A balance between open source and for-profit models is ideal.  I'm starting to wonder if it is possible for society to converge on an optimal balance on its own.  With open-source software entreprenuers coupling with technically oriented social entrepreneurs, we may see exactly this happen. In a way, open-source is an effective way to segment many markets between high WTP/low WTP or customers with a high need to customize.  We are at least seeing organizations realize strong benefits from opening up their platforms, which will lead to more open innovation in the future.  We are seeing from the likes of Facebook and Apple that it creates content, customer loyalty and enhanced products with minimum additional $ investment.

Software copyright rules currently provide 70 years of protection; perhaps this should be reduced to a much shorter term (5 to 15 years?).  A debate topic for another day.

Counterpoints to a James Howard Kunstler blog post on Amerca's auto obsession

I was sent this editorial by James Howard Kunstler and had a few thoughts on it.    


1) Throughout history, there has been no greater driver for technological change and innovation than personal mobility.  Vickie will laugh because I had a fun argument with myself about this on our first date.  I think that entrepreneurs and innovative companies will produce cars that meet the needs of people factoring in fuel costs, tighter budgets and shifting demographics.

2) High quality infrastructure (or at least "good enough" quality) is essential for economic prosperity.  It's an investment that may fade temporarily, but it will be recognized as essential.

3) One point I agree on is that the car industry will itself continue to be a largely unattractive one to be in, with strong global competition and virtually no sustainable competitive advantage other than reputation and quality of service (both areas where US car makers have dug themselves a ridiculously large hole).  

4) However, car makers who are dynamic and innovate, both on the product and cost-cutting side will find growing markets in emerging economies.  Flexibility is one area where car production could really use more innovation.  But the following things are bad for corporate flexibility: in-sourced production at large capital intensive plants, union labor, 3 to 5 year product development cycles.  Sound like any companies that have been in the news?

5) Cars are a durable good and there will be pent-up demand when and if prosperity returns.  I still believe this is a when.

6) America has thrived because of the dynamism of its companies.  We have to allow them to fail, or at least completely reinvent themselves on a consistent basis.  Let's hope Chrysler and GM emerge with this flexibility and get to live or die on their own merits.

Assuming nicknames...or "Dear Vicky"

You know the old saying about making assumptions...


Here's a strange thing to me. My girlfriend's name is Victoria. She goes by "Vickie", for short. Yes, it's a bit of an odd spelling with the "i.e."

Recently, Vickie has been the contact for some hiring. She's listed as Victoria. A few people e-mailed her for the position and addressed the first line to "Vicky". I am not really sure why people would assume that her name would be spelled that way. A Victoria can be Vicki, Vicky, Vikki, Vickie, Vikky or even Tori. And some just flat out preferred to be called Victoria.

Jobs are clearly in short supply, so maybe trying to go the personal touch is why a few of these people have done it this way. A couple of the folks who did this are acquaintances of mine who were probably trying to go for a personal touch. While they had never met Vickie, they were probably able to find out pretty easily she goes by the shorter version most of the time.

The problem is, when you're wrong, you're wrong, and asking around, it seems to be something people find personally offensive. You never want to make a mistake that jumps out at the person on the front page of a cover letter.

Wednesday, June 3, 2009

Thoughts for graduation day from John Schaar

Since my graduation festivities commence tomorrow, I thought these were especially timely and appropriate.  Credit goes to my great friend Gonzalo for these.

“The future is not a result of choices among alternative paths offered by the present, but a place that is created--created first in the mind and will, created next in activity…

…The future is not some place we are going to, but one we are creating…

…The paths are not to be found, but made, and the activity of making them, changes both the maker and the destination”

 by John Schaar, Futurist

Tuesday, June 2, 2009

Lessons from Alan Hassenfeld, Former CEO of Hasbro

Alan Hassenfeld, the former CEO of Hasbro came into speak to our CEO Perspectives in  Managing Adversity class earlier this semester.  I thought I would share some of the key points he made.  Hassenfeld's talk was actually about a crisis brought on by another company.  Mattel, Hasbro's main competitor and the number one player in the toy space had caused a number of recalls associated with contaminated paint.  


Here are some of the points he made: 

You have no right to ask someone to do something that you would do yourself: This includes sending people to far flung locations, or unethical issues.

Don’t do business with anyone you wouldn’t break bread with: At the end of the day, business relationships are complex, and will have their ups and downs.  Hasbro had 25 to 30 year relationships with some of their manufacturers in China.  Alan saw this as a critical part of Hasbro’s ability to understand and manage the risks.

Sometimes it’s better to be under the radar, especially when an industry is in crisis.

Cardinal rule of doing business in Asia: Do not cause people to lose face in public.  It’s important who you blame.

Countries don’t manufacture goods, companies do:  You are responsible for what your company puts on the market, and there is no excuse for blaming the supply chain of a country for what happens.  When you go to a low-cost country, you must manage the risk in its entirety since you take the fall if something goes wrong.

Succession planning: This is vital to the health of a company.  Know who will lead the company next and get them ready to do so. 

Consumer behavior is unpredictable: This is especially the case when your consumers are kids.  They will find ways to do things that you never thought possible and couldn’t have discovered in hundreds of years of testing. 

Some fun quotes from today:

“I’m Chairman of the Executive Committee at Hasbro now.  It’s sort of like running a graveyard.  There’s lots of people below you, but there’s no one listening.”

“Grandchildren are your reward for not murdering your children.” –Howard Anderson, quoting Bill Cosby

Friday, May 29, 2009

A more enjoyable version to read of our Hong Kong, China and Taiwan Equity Compensation Paper

For those of you who prefer to read the document rather than a blog, here is the China, Hong Kong and Taiwan stock compensation white paper in PDF form:

Thursday, May 28, 2009

The use of equity compensation in China, Hong Kong and Taiwan

The following is a working paper that I am posting for general consumption.  It is a review of the use of stock options in China, Hong Kong and Taiwan.  Please cite if you end up using it.  I am available to answer any questions or have a more detailed discussion.  

Equity Compensation in China, Hong Kong and Taiwan
Ted Chan, Ryan Carag & Sandy Lin
MIT Sloan School of Management

Executive Summary

Equity compensation is commonly used in the US to reduce the principal-agency problem and increase employee retention. However, much less is known about the use of equity compensation outside of US but general sentiment is that it’s on the rise. This paper explores the use of equity-based compensation to incentivize executives and employees in companies in China, Hong Kong, and Taiwan.

In the past, limited guidance existed in regards to equity compensation in China. However, many Chinese companies went public on the Hong Kong stock exchange as so called “red chip” companies and such firms have an interesting and varied track record with regards to the success of the use of equity compensation. Relative to mainland China and Hong Kong, Taiwan has had a longer history of stock-based compensation. Taiwan’s tech-boom of the 1990s was driven largely by stock-based-compensation largely in the form of stock-bonuses. The data show a steadily growing number of Taiwanese firms offering some sort of stock-bonus program to either its executives or entire core staff. Studies have also shown that these stock bonuses have been very effective in attenuating many of the principle-agent issues inherent in fixed-wage compensation schemes, both at the executive level and at the staff level of organizations, and in helping Taiwanese firms compete against multinational corporations for top-talent.

Equity Compensation in China in Hong Kong

This section looks at stock option compensation in China and Hong Kong. Because the mainland Chinese equity markets have only recently begun to mature, equity compensation in the mainland is intimately tied to the Hong Kong exchange.
Private Unlisted Companies

Stock options are still difficult to execute in China for firms that are not listed on the Hong Kong exchange. In particular, for private companies not yet listed on the exchange, Chinese employees can only exercise stock options if the underlying stock becomes listed or if the employer is acquired by a listed company. In contrast, in the US, employees can exercise their stock option by becoming shareholders in the company while the company is private. This means that using stock options as a means for employee retention for startups in companies in China is limited by the company’s ability to be acquired or go IPO. Many employees may find stock options not as great as a form of compensation given the risk of prolonged vesting period.

Publicly Listed Companies

Historically, stock options in mainland China were considered nominal incentives because, in the eyes of many, all senior executives at state owned enterprises were selected by the Communist Party under the assumption their stock options would never be fully exercised.Today, the idea of nominal stock options is dead. Among overseas listed SOEs, barriers to exercising stock options have been overcome, and some senior executives have received substantial rewards and have been cashing in substantially on them. (Xiu and Ming, 6/27/08)

In contrast, multinational companies listed in foreign exchanges or larger companies already on the Hong Kong exchange have an advantage in using stock options as a compensation tool over private companies. The Hong Kong exchange is by far the best option for companies on the mainland that wish to use this type of structure. In foreign cases other than Hong Kong, a structure known as Share Appreciation Rights (SARs) are used. A SAR uses a system that tracks stock gains on paper, and pay the employee accordingly. Some times this equity is actually traded by an overseas broker with the employee receiving the proceeds.

Gross and Minot (2008) summarize stock option use in China by multi-national corporations:

“MNCs in China often offer stock options (in one form or another) to managers and key employees. However, not all Chinese employees will necessarily be familiar with them. Even if they are familiar with stock options, they still may not necessarily be interested, since the compensation is delayed. Employees may prefer shorter vesting periods. Still, stock options are continuing to gain ground overall. Depending on the employee, stock options can be a useful method – among others – to encourage employee performance and improve retention.“

In private companies, compensation still tends to be up front for most employees except founders and senior management. Equity compensation is not well understood and because it is not received upfront, it is less popular.

Chen, Guan and Ke (2008) provide a comprehensive analysis of how equity compensation is used in red-chip firms. The Hong Kong Exchange defines a red chip company as one that has at least 30% of its shares held by a mainland Chinese company, with mainland companies in aggregate being the single large shareholders. A company can also be considered red chip if between 20 and 30% of its shares are head by mainland Chinese, and theyhold substantial influence on the board of directors. These can include state-owned enterprises, town and village enterprises in addition to privately owned firms. These companies essentially represent a subset of mainland Chinese firms that have gone public in the more liquid and efficient Hong Kong market. (HKEx Website)

Core et al. (2003) point out a major issue with equity compensation in less efficient markets. If the markets do not reflect managerial actions in equity prices, then the effectiveness of equity compensation must be question. It would in those cases cause deeper agency problems rather than properly aligning incentives. Furthermore, companies running in mainland have poor investor protection with regards to controls and disclosures. This has improved over the past 10 years, but remains an issue. Additionally, many of these enterprises have some element of state control, which also affects the way incentives are structured and managerial decisions are made.
Red chip firms are required to annually disclose their stock option compensation data, making it ideal for Chen, Guan and Ke to study it. During their sample period from 1990 to 2005, there were no Chinese regulations on stock options. Before this period, firms list in China were prohibited from issuing options. Thus, companies who wished to do so had to become red chip firms. At the end of 2005, China implemented a regulation permitting stock option compensation. Citic Securities, a major brokerage, is one mainland Chinese company that has implemented options according to Gross and Minot (2008).

Chen, Guan and Ke point out the regulations on stock options in Hong Kong are relatively similar to the US except for two points. First, no single participant can receive more than 25% of all the securities in a company’s stock option plan. Our interpretation is that this limits companies from concentrating too much interest in the share price in the hands of senior management. Secondly, the exercise price cannot be more than 20% below the average closing price of the stock for the 5 business days immediately preceding the option grant. This limits how far the option granted can be in the money.

Additionally, Hong Kong has relatively simple accounting rules for stock options. The initial grant of options is not a taxable event for the company or recipient, even if the grants are in the money. Hong Kong has low overall taxes (15 to 17%) on income, making it an attractive place to be granted in the money or high upside options.

Gross and Minot also mention that the Chinese government initiated a new plan which allows foreign exchange purchases for the purpose of stock options in foreign companies with prior approval from the government. Procter & Gamble China was the first to participate in this program in February of 2008. (Gross and Minot, 2008).  

Effectiveness of Equity Compensation in China and Hong Kong

Chiu, Luk and Tang (2002) found the biggest factors to retaining employees in Hong Kong were:

1. base salary
2. merit pay
3. year-end bonus,
4. annual leave
5. mortgage loan
6. profit sharing

In mainland China, Chiu, Luk and Tang found slightly different:

1. base salary
2. merit pay
3. year-end bonus
4. housing provision
5. cash allowance
6. overtime allowance
7. individual bonus
In both cases, merit pay means variable pay including options.

Xi (2006), cited by Conyon and He (2008) argued that independent directors exist not so much to provide oversight of senior management, but rather to open up connections within the government. In some way, this is not that different from companies anywhere in the world.

Conyon and He (2008) found that at least for CEO, options are working in some respect to align incentives for managers. They found that CEO equity incentives were positively correlated with firm size and firm risk profile. Their paper implies that China’s corporate governance regulations have done well to align managerial interests with the interest of shareholders. This study counters to a certain extent that Chinese corporations are subject to ineffective controls and regulations.

Cultural Issues in the Effectiveness of Stock-based Compensation

For the Chinese, the year-end bonus has traditionally been the way of rewarding employees. This is especially the case for lower level employees in blue collar and retail positions. Paid out around the Lunar New Year, these bonuses are often as much as 40% of pay. However, at a higher level, especially amongst “males, white-collar-employees, high performers, achievement oriented employees and those who already work under a merit plan tend to favor merit pay or the “equity approach”. (Chiu, Luk and Tang, 2002)
Different from U.S. executives, Red Chip firms’ executives rarely exercise vested stock options during their tenures in the firm. (Chen, Guan, and Ke, 2008) The Economist's article, “False Options” suggests that this can be due to cultural norms in China where cashing out on stock options may indicate disloyalty to the firm since once the options cashed out the alignment of ownership and management no longer exists. This calls into question how effective those options actually would be in motivating employees.

Furthermore, employees often do not understand the value of stock options. This however, can be corrected with time as more companies implement equity-based compensation programs and employees become educated in their value as a whole. But, similar to the US, stock options and their lengthy vesting periods are difficult for younger employees to understand. "Stock options don't really work with young people," explained one HR manager. "Saying we'll give it to you in five years doesn't fly. They want options and cash." (Melvin, 2001)

Equity Based Compensation in Taiwan

In contrast to Chinese mainland firms’ compensation, stock-based compensation has been more integral in Taiwan's industry growth, particularly in the tech-space and has been an integral part of the overall compensation for a growing number of firms in Taiwan.

Taiwanese tech-firms such as TSMC used stock-based-compensation as a tool to compete in the labor-force market. During the tech boom of the 1990s, for example, local Taiwanese companies were able to attract and retain top-notch employees through stock-based-compensation, even so far as being able to draw top talent from competing MNCs (Han, Shen 2004).

Figure 1. Number of cash bonus and stock bonus plans in Taiwan during 1990's tech-boom (unit: establishments)

Source: Monthly Bulletin of Labor Statistics, Taiwan

Clearer guidance on treatment around taxation on stock-incentives through the last two decades has made for a fairly well developed body-of-knowledge among hiring companies and their employees.


Stock-based compensation in Taiwanese firms has come largely in the form of stock-bonuses, which while mechanically similar to US employee stock option plans, have a few key distinguishing characteristics. (Han, Shen 2004).

  1. US Employee Stock Option Plans are typically structured through vesting schedules to be long-term incentives whereas Taiwan's stock-bonuses are in contrast relatively short term, given that the stock-bonuses given by Taiwanese high-tech firms are typically allowed to be sold immediately.
  2. US ESOPs are structured to encourage future performance, whereas Taiwanese stock bonuses are awarded based on past performance.
  3. US ESOPs recipients typically have to purchase the stock whereas employees in Taiwan have to make no such payment on their stock bonuses. This should be noted that the mechanics of a typical US ESOP execution allows a simultaneous buy-then-sell transaction where the employee executing the option does not have to make a cash outlay, but there are still differences in tax implications.
  4. While stock ownership is typically small portion of a US employee's compensation (at least in the immediate term) in Taiwan, stock-bonuses typically represent a very substantial portion of an employee's total annual compensation in firms where stock-bonuses are offered. This is explained primarily by the fact that Taiwanese firms typically pay less that their MNC counterparts, and as such use stock-based compensation to make their overall compensation competitive to those of MNCs. Such a sharing scheme as a higher percentage of employee compensation works particularly well in firms with high profitability and stock prices or in smaller firms who are bootstrapping their growth through profits.

Effectiveness of Stock-Based Compensation in Taiwan

There are arguments for and against stock-based compensation (and firm-performance-based bonus compensation in general) which tend to follow the similar lines in economics discussions.

Arguments for include:

  1. Since bonus amounts are tied to overall firm performance, bonuses induce employees to exert more effort to improve operational efficiency.
  2. Since bonus amounts are tied to firm profitability, bonuses can attenuate agency problems found in fixed-waged employment and can reduce the impact of conflicts of interest between principal and the agent. (Han and Shen 2004, Blasi et al., 1996; Kruse, 1993).
  3. Since the payment of the bonus is a variable portion of the total compensation, the bonus may produce an "efficiency-wage" effect which reduces shirking, turnover and attract better applicants (Han and Shen 2004, Akerlof and Yellen, 1986; Yellen, 1984).
  4. Bonuses can create group pressure, motivating employees to monitor and push each other to higher performance and to cooperate towards overall better firm performance (Han and Shen 2004, FitzRoy and Kraft, 1986; Kruse, 1993; Levine and Tyson, 1990).

Arguments against bonuses are primarily around the free-rider problems inherent with group-based incentives, given bonuses are tied to overall firm performance. An additional argument against bonuses has to do with the theory of team production (Han and Shen 2004, Alchian and Demsetz, 1972), which says that optimal employee monitoring and management happens when the management has residual equity in the firm. In the case where the employees share the equity (thereby diluting management's equity relative to the case where employees did not receive stock-bonuses), management will have less incentive to monitor and supervise the employees, thereby causing reduced firm performance.

Empirically, Taiwan's high-tech firms have experienced an extremely rapid growth over the past two decades, with many practitioners and academics believing that stock-bonuses have lead to good outcomes with regard to attracting, retaining and incenting firms' human capital. (Han and Shen 2004, Biagioli and Curatolo, 1999; Chen and Wang, 2001; Chiu and Tsai, in press; Tsao, 1999).

Chui and Tsai also found that stock-bonuses have over many years increased the average employee's psychological ownership and organizational citizenship. They also found that given the heavier distribution of stock bonuses to more senior and high-performing employees has shown potential to address the free-rider issues brought up by detractors of stock-based compensation. They found that the growing use of these Taiwanese-style cash and stock bonuses has had continuously positive effects on motivation, attraction, retention and performance of the studied Taiwanese tech-firms.

The growth and potential effectiveness of the Taiwanese-style stock-bonuses to attracting top talent might be shown by the example of Lien-Fa Technology Co., a Taiwanese IC design firm, who gave out stocks worth approximately US $514,285 on average to each of its 248 employees in 2001 and a considerably higher US $739,706 one year later (Han and Shen 2004). More generally, the effectiveness of such compensation structures is that many MNCs such as IBM, which was once viewed as a place for “the special group of preferred employees”, have been seeing “fierce warfare” from local, Taiwanese high-tech firms in hiring top talent. Many MNCs have even lost some high-level, key employees to local high-tech firms, in a striking similarly to the experience of large US high-tech firms to startups.

Effectiveness of Stock-based Compensation: at the Executive Level in Taiwan

In their paper, The Determinants of the Relationship between Top Executive Stock-Based Compensation and Performance Measures: A Study of Taiwan, Hung and Wang examined what effect stock-based compensation had on firm performance. They found that in general, stock-based compensation was effective at the executive level and identified the following four determinants on level of effectiveness:

  1. The President’s stock-based compensation will be relatively more sensitive to market performance, as compared to accounting performance, the larger the growth opportunities of the corporation.
  2. The President’s stock-based compensation will be less sensitive to market performance and accounting performance, the larger the size of the corporation.
  3. The President’s stock-based compensation will be relatively less sensitive to market performance, as compared to accounting performance, the greater the risk of the corporation.
  4. The President’s stock-based compensation will be relatively less sensitive to market performance, as compared to accounting performance, the larger
  5. the leverage ratio of the corporation.

The findings are intuitive in many ways, aligning with how much actual direct control executive actions have on the outcome of the company’s performance versus the company’s inherent growth potential through its core-technology, for example. Put in other terms, a fast car can still go relatively fast even it’s not skillfully driven, but will achieve its peak performance, near its limits of control, in the hands of an expert driver.

Effectiveness of Stock-based Compensation at the R&D/Staff Level in Taiwan

In Compensation Structure, Perceived Equity and Individual Performance of R&D
Professional: The Moderating Effects of Achievement Orientation, Uen and Chien examined the effectiveness of stock-based compensation at the R&D staff-level of high-tech firms, examining 258 high-tech firms in China. They found the following correlations:

  • Compensation structure has a positive correlation to an employee’s perceived equity
  • Employee perceived equity is positively correlated to individual performance
  • Individual performance is affected by compensation structure through perceived equity
  • The interaction of compensation structure and achievement orientation does influences perceived equity.

In short, they found that employees feeling of the fairness of their compensation to their level of input (effort, seniority, gender, amount of responsibility, working conditions, knowledge, skills, and abilities required by the job) in these high-tech firms was positively affected by their compensation structure's inclusion of stock-based compensation. This backs up Chui and Tsai’s findings regarding the positive correlation between stock-based compensation and psychological ownership.

Conclusion & Recommendation

We conclude from our study of China/Hong Kong and Taiwan that varying levels of maturity affects the effectiveness of stock-based compensation in incentivizing and retaining key employees for both larger companies (MNC’s and red-chip firms) and startups. For more mature markets such as Taiwan, stock-based compensation is an effective tool to attract, incentivize, and retain employees and is used as a tool against losing talent against MNCs. However, in China, the use of stock-based compensation is only implemented since the beginning of 2006 and is currently only limited to red-chip companies and MNCs that are publicly listed, commonly on the Hong Kong Stock Exchange. The use of stock-based compensation for startups in China are not as common because employees can only exercise their option if the underlying stock is publicly listed. However, we foresee that China will update its regulations on stock-based compensation for startup companies in the future to become more similar to the US, and in turn allow startups to attract and retain employees through the stock-based compensation.




Sources

“China’s Execs Sweating Over Stock Option”, by WenXiu and Ming Shuliang, Caijing Magazine; June 27, 2008
“Retaining and motivating employees: Compensation preferences in Hong Kong and China”, by Randy K. Chiu, Vivienne Wai-Mei Luk, Thomas Li-Ping Tang, Personnel Review, Vol. 31, Issue 4, Pages 402-431, 2002.
“Stock Option Compensation with Chinese Characteristics: The Case of Hong Kong Listed Red Chip Firms”, by Zhihong Chen, Yuyan Guan and Bin Ke; August 30, 2008. SSRN Working Paper.
Conyon, Martin J. and He, Lerong,Executive Compensation and CEO Equity Incentives in China's Listed Firms; August 31, 2008. SSRN Working Paper.
Hong Kong Stock Exchange, Investor FAQ, Online at http://www.hkex.com.hk/invedu/faq/list_gen.htm
“Retaining Chinese Employees”, by Sheila Melvin; November-December 2001 issue of The China Business Review
Tzu-Shian Han, Chung-HuaShen. 2007. The effects of bonus systems on firm performance in Taiwan’s high-tech sector, Journal of Comparative Economics 35 (2007) 235–249.

By Ames Gross and Shawna Lepage. July 2001. Stock Options in Asia, Pacific Bridge Incorporated Publication online at: http://www.pacificbridge.com/publication.asp?id=63

Jin FengUen and ShuHwaChien. Compensation Structure, Perceived Equity and Individual Performance of R&D Professional: The Moderating Effects of Achievement Orientation. SRS Working Paper.

Yu-Shun Hunga, Taychang Wan. The Determinants of the Relationship between Top Executive Stock-Based Compensation and Performance Measures: A Study of Taiwan. SRS Working Paper.

May 27 2005. PriceWaterHouseCoopers Bulletin. IAS Global Watch.