Nous embrassons un capitalisme du gigantisme digital. Souvent aveuglément, toujours avec embarras.
Les mots et expressions que nous employons en disent long sur la violence de notre relation à la prospérité numérique : « destruction créatrice », « disruption », « darwinisme digital », « uberisation », « big data », « monétisation », « the winner takes all »...
C’est finalement une bien étrange métallurgie que celle qui, à l’or des mots, préfère l’airain des néologismes bricolés à la hâte.
Et si nous méditions sagement notre rapport au monde digitalisé ?
La libre et instructive promenade que guide Éric Briys nous invite à flâner avec un historien, à faire l’école buissonnière, canif en poche, à reprendre le chemin de la bibliothèque, à apprendre à éplucher une banane, à franchir le Cap de Bonne-Espérance, à écrire de la twittérature, à converser avec les robots, à prendre le pouls de la classe moyenne.... et à ne plus confondre l’or et l’airain pour, enfin, agir.
Every year, Warren Buffett, the Sage from Omaha, delivers his Annual Letter to Berkshire Hathaway shareholders. What is so special about it? After all, tens of thousands of companies do the same. Each one produces an annual report with a letter to shareholders giving investors an account of how their corporation performed in the previous year and what lies in the pipe for the forthcoming year.
Of all those letters, the one that excites the most interest is the annual missive from the Sage of Omaha, Warren Buffett, whose iconoclastic approach to running a company has made Berkshire Hathaway Inc.'s class A shares the most expensive stock in America. For instance, the 2015 Letter is pure Buffett:
"I've mentioned in the past that my experience in business helps me as an investor and that my investment experience has made me a better businessman. Each pursuit teaches lessons that are applicable to the other. And some truths can only be fully learned through experience. In Fred Schwed's wonderful book, Where Are the Customers' Yachts?, a Peter Arno cartoon depicts a puzzled Adam looking at an eager Eve, while a caption says, "There are certain things that cannot be adequately explained to a virgin either by words or pictures." If you haven't read Schwed's book, buy a copy at our annual meeting. Its wisdom and humor are truly priceless."
Note that Buffett does not offer Schwed's book, shareholders have to buy their own copy, no small profit!
In another letter Buffett told Berkshire shareholders that Ajit Jain, who runs Berkshire reinsurance operations, wrote a rather unusual insurance policy. Indeed, in 2003 PepsiCo promoted a drawing that offered participants a (slim) chance to win a $1 billion prize. After multiple numbers-based games of chances and progressive eliminations, a single individual stood in the race facing the ultimate challenge. The six-digit number he was carrying had to be perfectly matched by the random drawings made by a 4 year old chimp named Kendall.
Despite the incredibly low odds, Pepsi management was worried that somebody might hit the jackpot. Hence, it decided to find somebody to lay off the risk. And, guess what, Berkshire issued a policy for the whole risk (as a matter of fact, the risk was less than $1 billion as the prize was to be paid over yearly installments, namely a present value of $250 million). The drawing was held on September 14th, 2003 and you can imagine that Jain and Buffett were holding their breadth while Kendall the chimp was carrying its duty. Fortunately for Berkshire, nobody won!
This story is not only interesting per se but also because it raises the question of whether you can trade away any type of risks. In the sixties, Kenneth Arrow and Gérard Debreu, two Economics Nobel laureates, came up with the so-called complete markets model where any event can be spanned by a security yielding a $1 payoff upon the occurrence of that event and none in case of no-occurrence. In Kendall the chimp case, Berkshire issued one billion of them paying $1 each if Kendall drawings were to match the finalist numbers. Real life is obviously far from this abstraction. But, as Buffet's example shows, market creativity tends to reduce the gap between the theoretical Arrow-Debreu world and reality.
This reminds me of the late Karl Borch story about the Loch Ness monster. Karl was a first-class economist and a true gentleman. He dedicated his entire life to the study of insurance and the economics of uncertainty. One of his pet example of an Arrow-Debreu market was that of Scottish whisky distillery Cutty Sark that had promised one million pounds for the capture of the Loch Ness monster. The distillery was fearing that, despite the low odds, somebody might succeed. Lloyd's of London did not shy away. Its underwriters issued a policy to cover the risk! The policy required the payment of a £ 2,500 premium. It covered the period 1st May 1971 to 30th April 1972. The monster was to be captured alive. It spelled the following extra conditions:
"As far this insurance is concerned, the Loch Ness Monster shall be: 1/ in excess of 20 feet in length, 2/ acceptable as the Loch Ness Museum to the curators of the National History Museum, London. In the event of loss hereunder, the Monster shall become the property of the underwriters hereon."
What is the lesson, if any, to be drawn from this? Apart, of course, from the fact that Lloyd's underwriters are shrewd: They become owners of the Monster! The lesson is that, contrarily to a widespread belief, we do not suffer from an excess of markets. As a matter of fact, a simple look at daily life strongly suggests that we suffer from not having enough markets to fine-tune our exposures to daily contingencies. Think of your home: Real estate prices are volatile and your home is usually a major fraction of your wealth. Still, you have to live with the hard fact that your home may one day become a lot less valuable than it used to be. And, for that exposure, unlike the Loch Ness Monster case, you do not have any insurance available. Markets are missing. Worse, the available markets fail us when we badly need them. The recent crisis is a sad illustration of this costly failure.
Missing markets are another example of the "all or nothing society." Either you have access to them or you don't. In today digital economy the situation is even worse. Millions of people who made so far a decent living out of their services are now dis-intermediated without any compensation. Jaron Lanier, in his remarkable Who Owns The Future? Book, notes for instance that when we use automatic translation services, such as Google Translate, we naively believe that we are using some sort of state of the art polyglot AI algorithm. Nothing can be further from truth. As a matter of fact, we access a cloud made of millions of translation snippets written by real human translators that are constantly harvested over the Web. What we submit for translation is compared to material that was previously translated. That's how we get the translation results. The thorny issue is that in the course of doing so the original human translators do not get a penny for their work as Google does not pay them anything. We get value from the translation service, Google gets good advertising money but the source of the original value is expropriated. All or nothing at play again. Lanier rightly argues it does not have to be so. Worse it is unsustainable. Quoting Ted Nelson's pioneering work on hypertext, Lanier advocates a micro-payment market whose aim would be to remunerate the authors of "borrowed" information. Since everything is stored in the cloud and can be traced back to the original authors, it should not be that difficult to organize a market that will reward these authors for the use of their work. Redneck pirates will certainly object to this proposal as it collides with their information wants to be free leitmotiv.
But this leitmotiv is awfully myopic. Free in a digital economy invariably leads to Leviathans through increasing returns to scale. Free means long term impoverishment. We end up being unfairly swapped: Free means that we have to accept an Faustian swap à la Google, Facebook, Instagram and so on. The swap is odious as it expropriates millions of people who keep joining the ocean of wannabes while the Google, Facebook... superstars capture all the gains. This is simply an unsustainable social contract. The future is broken if we are not able to engineer the missing markets necessary to recapture and fairly redistribute the value that has been expropriated on an unprecedented scale.
Let's put this way. We suffer from two deadly diseases: Too many (poorly designed) buoyant markets and too many missing (to be designed) markets!
According to best-seller author, Seth Godin, you're either a Purple Cow or you're not. You're either remarkable or invisible. Make your choice.
Cows are boring. Purple Cows are not. Purple Cow is a metaphor for something very special, not another marketing trick. It is embedded into the service or the product. If you've never read a book by Seth Godin, the Purple Cow is a good start. Godin has an innate way of making you think out of the box: Don't expect something academic, expect good sense and a great sense of humor too. If you run your own business, I bet after reading the Purple Cow you will keep wondering whether your business is a purple cow, and if not, how to make it purple.
This reminds me of the interview of a German manager whose family had been manufacturing garden dwarfs for centuries. Some twenty years ago, it was his turn to run the show. At the time, he said he hated the idea: How can you be successful with girls, he said, when they realize that you're in the business of garden dwarfs! As you may imagine, even if there are more and more garden dwarfs aficionados (including French designer Philippe Stark who made a stool out of a dwarf), most people tend to laugh at people who put dwarfs in their garden. They find it ridiculous, ugly what have you...
Now, it turns out that our German manager loves dwarfs and has developed a deep understanding of the garden dwarf market. What did he do to fall in love with his heirloom? He made a bet. He introduced a brand new (rather unexpected) kind of dwarf. His firm designed a new breed of dwarfs: For instance, a dwarf that has been killed by the neighbor. Imagine a dwarf, lying down, face (and beard) on the ground, with a knife deep in his back. This dwarf made a killing. The firm has sold tons of them.
The assassinated dwarf is a kind of purple cow. The dead dwarf is a fun and astute way of generating cash-flows out of the love-hate feelings that garden dwarfs trigger. You hate them, show it, buy a killed one. You love them and want to make fun out of your neighbor who hates them, buy one too!
As the Japanese koan wisely puts it, "always look for what you seem to miss in what you have." Many Internet businesses these days are born from this form of paradoxical wisdom. For instance, you think you do not have a hotel room, but as a matter of fact you do have one or even several, at home! So do many people all over the world who make Airbnb success. You do not have a cab, but as a matter of fact, you do have one, your own car. So do many people all over the planet who use Lyft, Uber... You do not have a distribution channel, but as a matter of fact you do have one, our PC and your Internet connection. Again, attitude beats latitude!
Daniel Kahneman is a faculty member at Princeton University and a fellow at Hebrew University. He is the winner of the 2002 Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel (erroneously known as the Nobel Prize in Economics), despite being a research psychologist and not an economist. Along with Amos Tverski, he has developed the so called "prospect theory" . On important feature of prospect theory is loss aversion.
According to Wikipedia, loss aversion refers to the tendency for people to strongly prefer avoiding losses than acquiring gains. Some studies suggest that losses are as much as twice as psychologically powerful than gains.
In a YouTube video, Daniel Kahneman gives his thinking on loss aversion. What is quite interesting is the point he makes on the difference between knowing the odds and not knowing them. When you toss a coin, you know the odds. When you innovate, fairly good chances, you don't know the odds.
When people don't know the odds, loss aversion disappears. People, according to Kahneman, behave optimistically. They are no longer shying away. They even tend to be overoptimistic.
That is what makes entrepreneurs a different kind of people: If they really knew the odds, they would never start in the first place! It seems, though, that venture capitalists are precisely those who want to know the odds and, above all, price them (business plans, Powerpoint presentation, valuation...). This may explain why they are so loss averse.
What is even more troubling though is how, despite my friend Nassim Taleb's writings, people, especially managers, can be fooled by randomness. They often take for genuine skills what is purely the output of luck. Think of portfolio managers claiming to outperform the market (do you really believe them given how many of them started the same rat race in the first place?), of CEOs loaded with stock options who were fortunate enough (few years ago) to see them end up in the money (see what happens when the stock market plummet, stock options are under water, does this mean that this time CEOs lack relevant skills or lost them?) etc...
Not knowing the odds is another way of saying that anything can happen. So, the first quality of an entrepreneur, apart from being an optimist à la Kahneman, is recognizing that systematically disentangling skill from luck is not worth the effort. What matters is the ability to define a business that does take advantage of luck, that is serendipitous, that improves through tinkering.
If you happen to be successful in the course of doing so, I will not blame you if you let others praise your skills.
But please don't let them fool you and others for too long!
Did you know that monkeys peel bananas from the bottom up (well to make things even more confusing this is the other way round since bananas grow upside down)? Anyway! If you assume that monkeys are banana experts (not a bold assumption to make), how can it be that we, clever humans, have it all wrong for so many years?
This is not a joke or some kind of "I love to turn conventional wisdom upside down" trick. The reason why I am interested in the art of peeling a banana is not to add my own explanation but rather to illustrate a principle, namely that of inversion. This principle is much useful as it can spark very creative processes. It is simple and boils down to the question "what if I were doing it the other way round." Yale University Professors Ayres and Nalebuff use this principle in their book entitled Why Not? and in their eponymous website.
Why do we have ATM machines where we can get money even if we are not customers of the bank where the ATM is located while we cannot do the same when we want to deposit money in the same ATM?
Why is that telemarketers who call us on the phone to ask us questions don't use a number which would credit our bank account, thus paying us for our time that so far they consume for free.
Think of Dutch auctions: Instead of proposing higher and higher prices, the auctioneer does the reverse and the bidder who wins is the one who steps in first (as opposed to last in "traditional" auctions).
Applying this inverted way of looking at business and people is indeed a unique way of creating new ideas, new business opportunities.
When I was an investment banker, I did realize that it was easier (to a certain extent of course) to buy from my clients than to sell to them. Not that obvious when you think of that army of fellows on trading floors called salespeople. They are not called "buypeople"! Buying derivatives from my clients made it easier to sell them derivatives. This is one the reason why the business of structured finance has been so lucrative: Putting in one single financial product derivatives bought and sold made the transaction more appealing. I will always remember this sentence from the floor: We have to make the product «optically good looking»! And, optics does involve inversion indeed: which side of the lens are you looking through?
A blogger abides to the inversion principle being both at the same time his or her own publishing company and the author. Airbnb homeowners become hotel managers. Cab clients turn into Uber cab drivers. Apple recreate the stores that Amazon and Dell wanted us to leave. Even hotel chains are applying the inversion principle. In 2014 Scandic Hotels has launched its Scandic to Go concept whereby you no longer go to your hotel. Your hotel room fully equipped comes to you wherever you are (as a matter of fact the spot has to be checked and cleared by Scandic first).
Monkeys are smart. Unlike Michael Porter, they know that value is nowhere to be found in a chain where everything always flows in the same direction. It does indeed pay to invert the flow!
So, next time you eat a banana, try it the other way around. While eating it try to find a new idea that would make the monkeys proud of you !
I once heard on the radio that Swiss students went on strike because they wanted more scholarships and less student loans. Who indeed would pay interest charges when you can find legal ways to avoid them ? A scholarship is nothing but a fully subsidized loan. In the finance jargon, what Swiss students have been asking for is a zero cost funding topped by the right not to repay the principal of the loan (right which in this particular case is always exercised.) Most of us would certainly love to receive free of charge money to fund the assets we want to invest in.
Even though I have a lot of sympathy for student activism, what strikes me in this episode is that (far too) many people, including students, seem to think that we live in an "All or Nothing" society. Either you get what you want in full (zero cost funding for that matter) or you get nothing (namely a loan with an interest rate).
But, wait a minute, where has creativity gone? Human brain is admirable precisely because it has always been able to fill the void between all and nothing. Let's take the example of the student loan again. The interest rate does not have to be either zero or strictly positive. What if students could get a loan where the forthcoming installments would be indexed on some future earnings measurement ? When students' future earnings would go down, the loan installments would go down too : Right when they badly need it. Take the worst case scenario where students do not find any job. In that painful case, the loan reimbursements would be suspended as long as the students do not find a job. When students' future earnings would go north, installments would go north too : Right when they can afford it.
I know there are many contractual details to be fixed to make this type of structured loan fly. Sadly enough and because of the 2008 credit crisis the creative folks at My Rich Uncle do no offer such a scheme and variations around it anymore (http://en.wikipedia.org/wiki/MyRichUncle.) Their schemes were quite innovative and available online ! But the spirit is still there: Use your brain to fill the void between all or nothing !
Recently, I visited vintage bookstores in Brussels. I bought an old business textbook dated 1900. It is titled "Textbook of Commercial Sciences" and has been written by Professor Merten of the University of Ghent. Two things caught my eyes. The first one is related to the way the reader can authenticate whether he is reading a true copy or a fake one. Simple, each true copy had to carry the author's signature. The absence of the signature signaled that the copy was a fake. Of course, it begs the question of how one knows the authors' true signature in the first place and how one can be sure it has not been counterfeited. In any case, it is fun to see that the compulsory signature indicates that book piracy was already an issue in this pre-Internet age !
The second thing has to do with copyright and copyright enforcement. We all know the traditional formula. It usually says "All Rights Reserved". Well, here the text is rather different. It is a lot more personal and a lot more detailed. Indeed, the publisher writes unequivocally:
"All rights are reserved in accordance with the law. I am willing to sue anyone who would, in violation of my copyright, reproduce any theory or proof from this book, either from past editions or from the current one." , The Publisher.
One cannot be more specific! I truly find it more « credible » than the usual "All Rights Reserved". Here again though, what strikes me is that we are still stuck in an "all or nothing" situation. Either the book is copyrighted (all) or the book is public domain (nothing: No Rights Reserved).
This is sad! What about having something softer that would say "Some Rights Reserved"? These rights would be spelled accordingly. Some uses would then be allowed without violating the publisher's rights. For instance, photocopies of books should be allowed in jailhouses or hospitals.I know that Harvard Law Professor Lawrence Lessig and the folks at Creative Commons have been fighting big time for this. Creative Common licenses do allow to change the copyright terms from the default of "all rights reserved" to "some rights reserved." But, the simple fact that they still have to fight for it is again strong evidence of the pervasiveness of the "All or Nothing" society.
The "All or Nothing" society is a real plague. The last thing we should do is surrender to it, an insult to our individual and collective intelligence, truly. After all, copyright is a social creation that we can and must adapt along the way. Some argue that copyright should be totally abolished. I do not think this is a good solution. A full copyright world is indeed not right. However, a no copyright world is wrong too. And, what is true of copyright is also true of property rights. It is an obvious fact that ideas can flow worldwide at click-speed. This does not necessarily mean that all copyright and property right dams should be destroyed. These dams do carry opportunities that can make them legitimate. What if, for instance, some of the royalties they trigger were allocated to public funds supporting innovative projects? What if we reconsidered what I call the Faustian swap (free service in exchange of all your data)? The swap is truly odious: the more free data are crunched, the more we are crushed. The more data are given away, the wealthier, more powerful and more uncontrollable robber robot lords are. Free is not fun at all!
So, next time you feel in an "All" or "Nothing" situation, please observe it carefully, there might be room for a new business.