Social Network Research

Social Networking for the Equipment Leasing & Finance Industry

11/3/2010 by David Teten

I just learned that the Equipment Leasing & Finance Foundation has finished their study on “Social Networking for the Equipment Finance Industry 2010“. The executive summary is available at http://www.leasefoundation.org/IndRsrcs/MO/SocMed10/ ; the full study is $300. The author is Suzanne E. Henry.

The study shows that B2B social media marketing in the equipment finance industry is still in the nascent stage, with participants waiting for clearer directions and guidance for return on investment and development strategies. For context, in its report, "B2B Goes Social," marketing agency White Horse reveals that 86 percent of B2B firms are using social media, compared to 82 percent of business-to-consumer (B2C) organizations. However, B2B firms aren’t as active in their social media activity with only 32 percent engaging on a daily basis compared with 52 percent of B2C firms.

The study is a good overview of social media for a B2B executive with little background. The best part of the study are the case studies of:

– GE Capital, undoubtedly the largest equipment leasing and finance industry player, which has been exploring and using social media for more than a year. The organization encompasses corporate lending, vendor/dealer financing, core equipment financing, and specialty finance, including GE Commercial Distribution Finance Corporation, which offers inventory financing;

– Duncan Aviation, the largest family-owned aircraft support facility in North America, which offers comprehensive service for nearly every make and model of business jets and turbo-props; and

– American Express OPEN Forum. American Express OPEN is the leading payment card issuer for small businesses in the United States

For more on the use of social media in the investing industry (at no cost!), see our research.

(Image by billjacobus1 via Flickr)

Filed Under: Chapter 08: Social Network Sites / Virtual Communities, Chapter 26: Marketing, Chapter 27: Sales, Social Network Research, Social Networking, Success Stories

Peter Thiel, Paypal co-founder, on How New Technologies Thwart Government and Promote Freedom

8/3/2007 by David Teten

I enjoyed tonight’s talk by Peter Thiel at NYC Junto, on “How New Technologies Thwart Government and Promote Freedom”. Junto is a libertarian-focused discussion group organized by Victor Niederhoffer. I’ve been following Peter’s writing for a while, since we overlap directly in our interests in investing and in online networks. Peter is President of Clarium Capital Management, an investor in both LinkedIn and Facebook, and was co-founder and former CEO of Paypal.

Peter started with two questions:

1) Let’s assume libertarian view is correct. Why aren’t more people libertarian?

2) What do we do about it? How do we make the world more libertarian?

Answers to question 1

– maybe libertarianism is not in peoples’ interest

– lack of education

– [Cf. Bryan Caplan’s book, The Myth of The Rational Voter]

Answers to question 2

When Peter was an undergrad, he might say:

– Education

– Go door to door

– Convince people to vote for candidates

But as he got older, he saw this is very hard to do.

(highlight of the evening: Victor Niederhoffer’s toddler son wanders around Peter’s legs at this point)

An IQ test for libertarians: ask them how optimistic they are. The more pessimistic they are, the smarter they are.

One solution: move control of money from the government to individuals. But you cant do this via plebiscite. If there was a form of money that government couldnt measure or track, you’d have a powerful alternative. This insight was genesis of Paypal in late 1990s.

In mid 90s, several companies were creating alternative currencies: Cybercash, Digicash, etc. All of the initial attempts were going out of business. Money has a network-like aspect. How do you create a new currency when no one else is using it?

All these efforts had run aground against this rock. So Paypal started by leveraging against existing systems: credit cards, checks. Send money to anyone with an email address. Started with 24 employees at Paypal. Preloaded accounts with $10. Started to spread. We grew at 5-7% compounded daily.

Einstein, “Compound interest is so miraculous it could only be created by G-d”.

Initial theory was very idealistic. In reality we ran up against many obstacles, the first of which were customers. Massive amounts of emails/customer service inquiries.

Spring/summer 2000: discovered bad people are out there. Whole wave of fraud, including Russian mobsters, tried to exploit Paypal. Someone threatened Peter’s mother unless PayPal unfroze his account. Then that person ended up shot dead.

Found dystopian website in Former Soviet Union: “Carders World”. A carder is someone who steals financial information on people. This was a marketplace for personal financial information. They had a manifesto saying that they were going to take down the capitalist system. Paypal information was there.

2001 period: next obstacle was government. Initial Paypal strategy was to ignore government regulations’we are not a bank’; ‘ none of these laws apply to us’. If we rolled this out quickly enough, the government couldn’t stop us. “If you have a world where everyone is a criminal, you have to change the law.”

Visa/Mastercard tried to come up with rules to prohibit Paypal from using their service. Government was even slower. Radical technological change must be fast.

In 2001/02, when company went public, things really hit the wall. The person investigating their S-1 thought that his job was to stop companies from going public. “He was demoted in government, which is a really extraordinary thing to happen.”

Businessweek article said that state of Louisiana hadn’t quite signed off on this. SEC investigator told Paypal management that state of Louisiana was going to shut this down. So in middle of roadshow, Peter had to track down government regulators in Louisana and convince them that Louisana did not want to get reputation as a particularly backward place. “So within 2 days, we managed to get that stopped. At the time we had 100,000 Louisana users.”

“We are now in 100 countries. 3^rd largest payment brand after Visa/Mastercard in the world. “

How successful were we? Paypal currency is still denominated in national currencies. If you only have one form of currency, you’re beholden to the issuer of that currency. Our initial vision inspired in part by Argentinean economic turmoil. If you can force competition between governments, you’ll have stabler currencies.

Early 1980s: high inflation rates all over the world. Since then, it’s gone down almost everywhere. Forms and symbols can persist well after the substance is gone, e.g., Queen’s face is still on UK currency. Technology has been a very powerful force for decentralizing things.

1960s Time magazine cover: picture of 1 big computer that could run the world. Cf. Hal 2001. Computers as a force for centralization is a classic image. In the 90s, power shifted to individuals.

Famous early example: Soros distributing fax machines throughout Eastern bloc.

If everyone becomes a currency dealer thru Paypal, it changes the world.

So much has changed. For example in 1971: it was illegal to own gold and other currencies in the US. 1971 Treasury Secretary said, “It’s our money—we can print as much as we want and it’s the rest of the world’s problem”. You can’t imagine Hank Paulson saying something similar today.

Power is shifting ineluctably away. Will technology continue to be a force for decentralization?

Why did 1960s vision of centralized computer not happen?

Peoples’ ability to process information is flat, but the amount of information has gone up dramatically. So the only solution is decentralization. This is also why Moscow can’t set the price of potatoes in Vladivostock.

You may be able to approximate information processing to a problem solveable in polynomial time—and then you have AI, and the 1960s vision of a centralized computer processing everything.

By 2050, we could have thousands of different countries. We have 10-20 years to push as hard and far as we can in direction of more liberty.

Q: How do you prevent Paypal from being used as electronic hawalla—form of terrorist financing?

A: We have protections in place—abide by Patriot Act.

2002: first year number of printed checks in US went down.

Q: question about Second Life and inflation

Q: question about goldmoney.com

A: The problem with gold is that when you really need it, it’s not there. In 1933 the government confiscated all the gold bullion in the US.

Q; How do you promote libertarianism?

A: When I was young I tried to reduce the demand side (demand for regulation), but then I saw it was much too hard. So now I focus on the supply side. If I expand the supply side (e.g., more options for currencies), I reduce the amount of government in the system.

I want to promote change without being obliged to go through an election or plebiscite.

Governments are losing power to inflate because of technology. The risks are now tilted to deflation, not inflation. A deflationary environment is hard to invest in, because you can’t just lever up and pay things off in cheaper dollars. Private equity and real estate are bad ideas in a deflationary environment. Donald Trump’s argument is that you should be short dollars by going long real estate, is disastrous.

Q: How does Facebook promote libertarianism?

A: Facebook will be the dominant next media company . Since the old media companies are non-libertarian, this in itself is good.

Hedge funds are a way to bet against stupidity of governments.

Q: Could you comment on US visa policies and their impact on competitiveness.

He commented that once a tipping point happens, it’s impossible to go back. Once the camel’s back is broken, it can’t be healed. Right now the marginal tax rate in NY is ~50%. In London it’s 0%. So it’s compelling for a hedge fund to set up shop in London, not NY.

There’s a definite shifting of centers of quality overseas. It’s happening faster in finance than in technology, but it is happening. (Audience member mentioned that Microsoft is setting up research centers in Canada and elsewhere specifically because they cant bring the researchers they hire into the US.)

Filed Under: Miscellaneous, Social Media Industry, Social Media Sites, Social Network Research, Success Stories

Social Commerce: Do you want to do business with your friends?

1/2/2007 by David Teten

I’ve recently talked with a few people about ‘social commerce‘—the idea that our online business activities will both reflect and in part be driven by our personal social network. My coauthor Scott Allen recently did a market research study on “Transactional Trust in Social Commerce”, which provides some context on this.

For example, many people would prefer to buy a used car from a friend or a friend of a friend, rather than a stranger. The social context is particularly important, in my experience, when purchasing services as opposed to products. Why? Because the quality of a service varies wildly depending on the motivation and context of the service-provider.

For example, my wife and I are currently evaluating some contractors to do some renovation for us, and a contractor who lives near us and knows some of our friends socially is less likely to rip us off than someone who is a stranger.

Amazon has a primitive version of this functionality, in that I can see that people who like book A also like book B. I’ve also seen quite a few startups who are working on various variations of, ‘What is an efficient way to buy stuff from friends as opposed to strangers?” See for example www.stylehive.com and www.thisnext.com. This was supposed to be a significant part of Tribe‘s business model, and some of the local services directories (e.g., Yelp, LinkedIn) are also trying to leverage the fact that you trust your friends’ (or friends of friends of friends) recommendations.

I see several advantages of socializing commerce, in general:
1. Higher likelihood of truth in advertising. The friend is less likely to lie about how lemony the used car is, because he knows that interacting with you is a repeated game, not a one-time game.
2. Reduced purchase cost because of fewer intermediaries. By buying a car from a friend, you don’t have to pay a dealer’s markup.
3. Reduced costs of identifying the right product. Friends (or friends of friends) tend to have similar tastes. If my friend is (like me) a city dad with a child, then my friend is also likely to have a car to sell me that suits the needs of me and my family.
4. Helping out your friends/your community. No one does a business transaction unless he/she derives some benefit. You’d rather that your friend gets the economic benefit of selling a car than a stranger.

So does it make sense to use online networks to make commerce more social? To evaluate against the criteria I listed:

1. Higher likelihood of truth in advertising. Possibly also true online. However, online we already have measures of reputation that are not dependent on me knowing someone who knows the person in question: eBay’s reputation functionality, Rapleaf, etc.
2. Reduced purchase cost. I think in most cases this doesn’t apply online, and in fact the purchase cost when buying via a social network can be higher because I lose the advantage of a broad seller base competing with one another. In addition, somehow the intermediary (e.g., Amazon, eBay) has to make a markup. If I’m buying something online anyway, then I’ve got access to a shopping comparison engine which will lower my purchase cost to the bare minimum.
3. Reduced costs of identifying the right product. This is likely true, but only for a small number of products. For many products, my friends are not necessarily more knowledgeable about the product category than Cnet.com—so I should really just buy what Cnet recommends, not what my friends are buying. The one advantage of buying what my friends recommend is that, if conforming is my goal, this helps me to conform. If everyone else pays a premium for an iPod or Treo 650 then clearly I must buy one too.
4. Helping out your friends/your community. To some extent this is also true online. However, I doubt it’s a big motivation for many people.

Research from the likes of Forrester, Resource Interactive and Morgan Stanley is also beginning to focus on a new generation of consumers they term the Millennials (aka, Generation Y) who range in age from 18-26 years old. Their buying patterns differ from prior generations. The Millennials exceed the Boomers in size, distrust media and have little to no affinity for brands. As opposed to earlier generations, they value their peers advice and validation: therefore, CNet recommendations are less valuable. Jeff Leventhal, CEO of Spinback, observed, “this generation is the largest consumer group to date and will shift the commerce paradigm.”

It’s clear that many people like doing business with others in their community, or with others to whom they’re interconnected. Think how many offices have an internal email list for people to sell sporting tickets, TVs, etc. Think of the bulletin boards with things for sale that you’ll see in many churches or synagogues.

However, if you are already doing commerce online as opposed to face-to-face, I’d argue that in many cases it’s irrational to make your commerce decisions dependent on your social ties. In most cases it’s more rational to just buy things via a comparison shopping engine (Shopzilla, Froogle, etc.), particularly when buying a commodity good that could otherwise be found in a few block radius.

The good news for the startups trying to do something in this area: first, many people are irrational and will prefer to buy via a social intermediary, even if they get a worse deal. And second, for certain types of purchases buying via a social intermediary can be more rational, especially when the item is a not a common good, but rather a unique or collectible item. Used cars are the most obvious example, because there are so many ways in which the seller can deceive you about the true value of the product. If you’re a Pez dispenser collector, fellow members of your community can also turn you on to an impulse purchase which you would not have searched for yourself on Shopzilla, but which you are excited to buy because a trusted peer refers you to it.

Feedback welcome.

Filed Under: Miscellaneous, Social Media Industry, Social Media Sites, Social Network Research

danah boyd profile in Financial Times

10/28/2006 by Scott Allen

There’s a great write-up of danah boyd in Financial Times, which labels her the high priestess of internet friendship. I thought they did a great job, with the exception of not respecting her preference of not capitalizing her name.

In addition to profiling danah, the article also chronicles the development of Friendster and MySpace, and others, as well as some of danah’s insights on social networking sites.

For one thing, danah found that while these sites have created a few celebrities of their own,

…apart from a few intense self-promoters, most people, Boyd found, were using the sites to present themselves to a small group of friends and get their recognition and feedback. The sites are an opportunity to define in public who they are. By providing an audience, and the tools to interact with that audience, the social networks are satisfying that need. Boyd calls this behaviour identity production and, employing a favourite phrase of hers, says that young people are trying to write themselves into being.

The article goes on to talk about social content sharing, business-oriented social software, and sexual predators. The latter has been covered a lot in the news lately, but I agree with danah:

The fears are so painfully overblown, said Boyd. Is there porn on MySpace? Of course. And bullying, sexual teasing and harassment are rampant among teenagers. It is how you learn to make meaning, cultural roles, norms. These kids need to explore their life among strangers. Teach them how to negotiate this new world. They need these public spaces now that other public spaces are closed to them. They need a place that is theirs. We should not always be chasing them and stopping them from growing up.

There’s more on the tension of commercialization, as well as answers to the questions, “What are social networks?” and “Do the sites make money?”

Even though it’s ostensibly just a profile of danah, all in all this is probably the best article I’ve seen on the topic of social networking in a mainstream publication.

Filed Under: Social Media Industry, Social Network Research

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