The Future Place Blog

Social Lending - an Online alternative to banks?

This week’s New Scientist (online here) has an interesting article about a potential shift away from conventional banks to online agreements between would be lenders and would be borrowers. The article quotes a study by the Social Futures Observatory which claims 74% of Britons would consider a non-bank alternative.

One of the sites that the article talks about is US-based Prosper.com, which tells prospective lenders that they could charge interest at between 8% for AA rated customers, through to 22% for those with the lowest rating, for loans up to US$5000 (larger loans cost even more). The process is described in the screen grab below (click on it to get a better view).

The process of bidding and rating is similar to eBay, but here the product that is on sale is money.

Another similar site is zopa.com, which advertises lower average returns for lenders (i.e. lower charges for borrowers), and seems to talk more about risks. Zopa have a chart comparing their average rate of return (before tax, but after bad debt and fee) of 6.75% against Cahoot at 4.8% VirginMoney at 4%. Zopa is a UK venture and appears to be regulated, although is says that it is only regulated by the Financial Services Authority in terms of its insurance mediation activities. Disclosure, I am not a financial adviser, do not take or depend on my advice!

The people putting this idea forward call it social lending, which may be a major misnomer for anybody paying 20% a year interest rate. Generally, if the main banks don’t want to lend you more money, there is often a good reason, and that reason often means you can’t really afford to be paying 20% interest rates!

Social lending could be the next big scam or disaster, or it could be a major revolution. If enough people were borrowing and lending via Social Lending then market forces would drive rates to an equilibrium point. At the moment the UK bank rate is 5%, it might be that if there were a large and liquid market in social loans, then the interest rate could be slightly above that, perhaps 6% (because of the risk the return for Social Lending should normally be higher than for a safe deposit). At 6% for lenders and borrowers, plus a small fee for automated bidding, most lenders and borrowers would be better off than dealing with a high street bank, at least until they lost their money.

All in all, the social lending scheme reminds me of the line from Bertol Brecht’s Threepenny Opera “Who is the bigger criminal: he who robs a bank or he who founds one?”.

MaxDiff Scaling in Barcelona

On Monday of this week, Jon Pinnell and I ran an Advanced Quant workshop for ESMOMAR as an opener event for the Online Panels Conference. I was very pleased to note that 24 people had signed up for the course and that 24 people actually turned up! If never fails to surprise me that companies pay for employees to attend workshop and about 10%-20% don’t turn up. Some probably have valid reasons, but what about the rest?

During the day Jon and I covered a range of topics including Conjoint, Discrete Choice Models (SEM), ‘What if’ modelling, Structural Equation Modelling (SEM), alternatives to clustering, TURF (Total Unduplicated Reach and Frequency), and BYO (Build Your Own product using an online configurator).

One topic that caused interest was MaxDiff Scaling, a relatively new technique which is still growing in its popularity. As an introduction to the technique each attendee rated 3 or 4 tasks sets, saying which elements were the most important and the least important in determining whether to attend a conference. Each task comprised a card with 4 of the ten attributes being show, in a fractional factorial design.

The exercise was based on just 24 respondents, which meant that each item was rated 40 times during the total exercise. The table below shows the importances of the 10 attributes using three methods of calculation, i.e. just using the items rated as most important, the least important, or the more traditional method of using the most and least in combination.

A number of speakers, such as Sawtooth Software’s Bryan Orme, have been talking about the benefits of just using the Most scores (e.g. when looking to maximise sales), or just the Least scores (e.g. when evaluating satisfaction). The table above suggests that, for these 24 people, the three most motivating attributes are the same, regardless of the analysis (i.e. Keynote Speakers, Presentations, and Written Papers). However, when we compare the combined score with the Most score we see that Number of Clients moves from 8th out of 10, to 5th out of 10. This suggests that there are two groups of people, some people for whom the number of clients is of very little relevance (perhaps they are clients, or perhaps they sell to agencies), and another group for whom this is a very motivating factor.

If the study were run for real, with a respectable sample size, we might use the combined score to evaluate things like the cost of providing overall satisfaction. But we might use the Most scores as the key input to increasing the number of attendees at a future conference.

What happens when things get almost free?

Chris Anderson, author of The Long Tail, has been following a theme recently about the economics of abundance, and has adopted the phrase Freeconomics. Chris highlights a number of changes in the IT area. In 1982 1 MIP (million instructions per second) cost about US$1000, now it costs about US$0.01.

In the 1950s transistors cost about US$100 each, by the 1970s they were down to about one cent, then came large scale integration and the started costing millicents, and Anderson now estimates they cost nanocents, as he says “almost free”. Two other examples quoted by Anderson are hard disks (0.03 cents per megabyte) and broadband (lest than 10cents per gigabyte).

As Anderson points out, as things become almost free one of the things that happen is that we begin to waste things. The use of these cheap MIPs and storage in PCs has led to bloatware, software that has grown unnecessarily large and contains many unwarranted features. PCs may be 1000s of times more powerful, but they don’t boot any faster than they used to, and it still takes too long to back them up.

Click fraud and advertising

This Economist has an opinion piece this week looking at online advertising.  The Economist points out that the global online advertising market is worth some US$27 billion, and is expected to grow to US$61 billion by 2010. The Economist reports that it is estimated that online advertising will account for 20% of all advertising revenue, 4 times the current figure.

However, the Economist’s article highlights the problems of click fraud, where people or software fraudulently click on adverts in order to generate revenue or to waste the spend of competitors. The article quotes the cases of US law firms paying as much as US$30 each for people who click on and advert after typing “mesothelioma”, and asbestos related cancer that lawyers love to represent, in such cases the temptation for fraud is significant.

The Economist reports that there are varying estimates of click fraud, with the typical value being around 10%, but with some estimates as high as 50%. The article draws parallels with TV in the 1940s, before rules were drawn up in the 1950s and 1960s

Podcasting Still Not Taking Off

The BBC report that although the number of US people who have downloaded a podcast is rising, the number who do it regularly is remaining constant and very small. The report is based on a study by the Pew Internet and American Life Project. In the current wave 12% of US Internet users said they had downloaded a podcast, up from 7% in February. However, the number who said they would download one in a typical day was 1%, the same as February.

Forecasts about future podcast use are very varied. Last year a report by The Diffusion Group suggested a US audience of 56 million by 2010. However, a report by Forrester Research in May of this year forecast an audience of 12 million.

My view is that the future audience for podcasts will be smaller than most people will forecast. The main impact of podcasts lie in the realm of entertainment, where they will develop and grow. The only other niche that will establish, IMHO, is information for people on the move. When people can wirelessly access podacasts from their MP3 whilst driving or on the train, then they will be used as an information medium. For most information needs the written word is faster and conveys more control to the reader, compared with the linear structure of listening.

Ozymandias, One of my favourite poems

Every time I start to think that anythng is too important, and too significant, I think about Shelly's poem, Ozymandias, which reminds us that in time everything is superseded.

I met a traveller from an antique land
Who said:—Two vast and trunkless legs of stone
Stand in the desert. Near them on the sand,
Half sunk, a shatter'd visage lies, whose frown
And wrinkled lip and sneer of cold command
Tell that its sculptor well those passions read
Which yet survive, stamp'd on these lifeless things,
The hand that mock'd them and the heart that fed.
And on the pedestal these words appear:
"My name is Ozymandias, king of kings:
Look on my works, ye mighty, and despair!"
Nothing beside remains: round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away.

To find out more about Shelly click here.

The Web is becoming the dominant advertising medium

Joe Mandese has posted a story on MediaPost based on GroupM’s “This Year Next Year Worldwide” (GroupM is the holding company for WPP’s media buying and planning companies). The report highlights several useful facts, and several interesting forecasts.

Worldwide in 2006, the dominant advertising medium is expected to be TV, accounting for  56% of the 2006 increase in revenues. The Internet is second, with 21% of the 2006 increase. The report also says that in the US and the developed markets the Internet is already the dominant medium, accounting for 37% of the 2006 increase, whilst TV will account for 33%.

Simply looking at revenues tends to understate the changes going on in advertising and marketing. Internet advertising is expanding, it is cheaper than alternatives, and it is getting cheaper. So, as advertising and marketing activity is transferred from conventional formats to the web it reduces the cost. The net effect is that whilst activity continues to rise faster than growth in GDP, this rise in advertising and marketing expenditure is increasing at a rate slower than would be expected. A good example of this is direct marketing in Europe, where despite a growth in the amount of marketing there has been no growth in expenditure.

Panopticon Society

A post by kdawson on Slashdot uses the terms Panopticon Society, a term we might need to become more familiar with. The cause of the post was a story that the UK police are experimenting with fitting 8 mini-cameras to police officers helmets, to provide 360 degree video recording of incidents. The post links this innovation to the growth in CCTV and systems such as the ANPR (Automatic Number Plate Recognition), to point out that we are increasingly being watched by people we can’t see. Part of the electronic wave I have written about before. For example, at the moment the UK Information Commissioner has estimated that there are 4.2 million CCTV cameras in the UK, one for every fourteen people, and the average person is captured on CCTV 300 times a day.

So, the panopticon society? The Panopticon was an idea for a prison designed by British philosopher Jeremy Bentham (1749-1832). The following definition is from Wikipedia
“The Panopticon is a type of prison building designed by English philosopher Jeremy Bentham. The concept of the design is to allow an observer to observe (-opticon) all (pan-) prisoners without the prisoners being able to tell if they are being observed or not, thus conveying a ‘sentiment of an invisible omniscience’.

The architectural figure ‘incorporates a tower central to an annular building that is divided into cells, each cell extending the entire thickness of the building to allow inner and outer windows. The occupants of the cells [...] are thus backlit, isolated from one another by walls, and subject to scrutiny both collectively and individually by an observer in the tower who remains unseen. Toward this end, Bentham envisioned not only venetian blinds on the tower observation ports but also mazelike connections among tower rooms to avoid glints of light or noise that might betray the presence of an observer’.”.

Bentham’s prison was never built in his lifetime, but there are prisons around the world modelled on Bentham’s ideas.

I do not know whether kdawson coined the term Panopticon Soceity (a Google search of “Panopticon Society” records 1,640 occurrences), or heard it elsewhere, but it seems to me a very apt phrase. We are all on view, and we can never be sure whether, at any given moment, we are being watched.

Threadless, Custom Fabrication and Personal Fabrication

O’Reilly Radar has an interesting post, discussing the implications of threadless.com. I have posted about threadless.com before, they are a site where uses submit ideas for t-shirt designs, users vote on the designs, and the most popular are manufactured and sold. O’Reilly describes this as and example of Crowdsourcing (a term coined by Wired Magazine, similar to outsourcing, but instead of using external companies, volunteers and amateurs do the work).

The O’Reilly post goes on to reflect on how the threadless.com model could be used in other areas. The post comments “custom fabrication devices like laser-cutters, water-jets, and 3D printers are currently at about the price points of typesetting machines back when desktop publishing took off in the early 80's.”. One example of custom fabrication is provided by the print on demand devices that can produce a single copy of a paperback book, with individualised cover and dedication.

As custom fabrication grows crowdsourcing will become relevant to more and more situations, as will very small production runs. The next step in the process is personal fabrication. It is already possible (but somewhat expensive) to buy a 3-D printer that will create plastic replicas of objects (such as avatars).

As Chris Anderson, author of The Long Tail, has said, we are creating new facets to economics. Traditionally economics has been about scarcity; in the future we need to think about abundance. When distribution costs become close to zero (because the design is transmitted to your personal fab), the cost of design approaches zero (because of crowdsourcing), the cost of storage becomes zero (because the product is not stored prior to sale), the scarcity factor becomes the ability of people to choose,while the commodities become abundant. This is the world of The Long Tail.

The challenge for research is to work out how to do a better job than simply using ‘trail and learn’ (i.e. making things available and seeing what sells).

Selling to the converted?

The clip below was recently added to YouTube, and sets out to show that real men are posting and blogging. But perhaps they are trying a bit hard?