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.
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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