Call Your Mum is a new Sydney based website aiming to make Australian mums happier. It gives young adults reminders and creative ideas to make their mums mum feel special.

The free tool, available at www.callyourmum.com.au, is the first of its kind to give busy young adults the tools they need to make their mums happy.

It is easy to push aside calling your mother because of work, your girlfriend or simply because you’re tired.

James Cox, a 27 year old from Sydney, had this problem and decided to look for a solution. He surveyed a range of his friends and their mothers to find out what could be done.

2 out of 5 of the people he asked admitted to having forgotten their mum’s birthday or mother’s day at least once. More than 4 out of 5 of them admitted to ignoring calls from their mum because they were busy.

But the news is not all so bleak.

“After surveying mums around Australia, I found that making my mum happier might be alot easier than I thought. It seems Mums just want to share their lives and know about their kids.”, said James.

When asked what was the best gift their child had given them, Mums’ answers ranged from “Coldplay tickets” to “A heart felt hand written letter” to “Their Love”.

Call Your Mum plans to use the best ideas from the Mother’s survey and deliver the ideas at random times to people’s email, Facebook and Twitter accounts. It will use on automation, ideas and reminders to penetrate people’s busy lives.

But the service is not just about giving your mum a new toaster or manicure. It is about finding ways to better connect with your mum and make her happy.

PRESS RELEASE, 04/05/12, 9:30am

Is it still too bloody hard to plan and book a holiday yourself economically and intelligently? Whether it be choosing where you want to go or booking flights and hotels, it takes time effort and usually some level of frustration.

The idea of this post is to open your eyes to the range of innovative travel sites out there that can help you book trips online. It will also outline some opportunities in the online travel space. Since there is alot of information below, click the following links to skip to any of the sections below:

• 9 Cool Travel Sites You Didn’t Know About
• The Cheapest Ways to Find and Book Flights
  
• The Cheapest Way to Find and Book Hotels and Hostels
  
• Deciding Where To Go on Your Holiday And What To Do

Having spent countless hours of online research for my own trips, I’ve been able to cruise through 30 countries with perhaps far more insight than I would have had 20 years ago. I’ve also learned plenty of lessons along the way. But, the key difference between now and 20 years ago is that the onus of effort now mostly fell on me rather than a travel agent.

Thinking over my trips, I have compared booking sites for best prices and quality, scanned different flight maps and routes for the best ways to arrange my trips, asked friends and travel agents for advice, and scanned through and filtered hundreds of user reviews on a range of different sites. Compound this with many of my friends doing almost exactly the same work and you have a generation of Aussie dollar fueled travel agents in the making.

The range of options below vary in terms of effort and payoff. I’ve tried to give my assessment of how useful they by outlining how often I use them when planning and booking trips overseas.

9 Cool Travel Sites You Didn’t Know About

Room 77 - A particularly smart tool I have used to discover hotel rooms in different cities around the world. I prefer the number of choices it gives you in how you filter the results and like that it integrates reviews into the search results. I also like that it lets you see the search results of a hotel search on a map easily. Here is an example of a Room 77 search of hotels in Tallinn Estonia in map view.

Mygola - This tool is like a crowdsourced trip planning service that allows you to request personalised trip planning from their range of trip planners. Usefully, it also allows you to search the range of other people’s completed trip planning requests. From what I have seen, the site seems useful though you have to have confidence in their planners to rely on the site completely. Here is an example – Things to do in Instanbul. I also quite like their payment model (free for some level of service or $30 a trip / $99 a year for quick personal service).

Airbnb / Wimdu / VRBO - These sites are cool. They allow you to avoid hotels and book people’s apartments directly from them in other cities. Have used Airbnb which has the best service and safety in St Petersburg, Medellin, Hong Kong and Stockholm.

Adioso Flight Bookings -  Whilst this site is still in beta, I like what they’re trying to do. They give a range of far more useful flight search options than the standard painful dropdown menu seen on most flight booking engines in the world. Say you know you want to go away this weekend from Sydney but dont know where. Or say you don’t even know when but you know you want to get away soon. A search like this on Adioso could help you outlining a range of the cheapest flights out of  Sydney over the coming months.  It also lets you create flight alerts for places you want to go to be sent to you by email.

Gogobot - This is a social travel guide and planning website. It lets you see how your friends travel, what they recommend and what people you don’t know recommend. I have not used it extensively yet and it could fall prey to the problem of too much information if not done well but it does have some cool features.

Expert Flyer - Probably not on the same level of usefulness for me as those above but this site helps you to ensure you get better seats on the flight bookings that you make by using alerts. Quite useful for very frequent flyers i imagine.

The Cheapest Ways to Find and Book Flights

There are so many flight bookings options out there. Many of them I find add a % to the cheapest airfare you can get at any particular time. As a result, I use a combination of the following to find and then get the best price on flights and often ending up booking directly through the airline or a travel agent after finding the best deals available.

Additionally, don’t buy airline tickets earlier than about 4 months before departure unless it is peak season when you are leaving (in which case do). Airfare prices can rise dramatically within 14 days of departure so if you are going to leave it late, you are likely to pay more. Sign up for general sale alerts on Bestflights below, your favourite airlines and any other good booking sites mentioned here. These can save you alot of money.

Skyscanner - I have used this site for years. Again, whilst it doesn’t cover all routes around the world on all airlines (something I believe these sites need to do), it is very useful in terms of discovering which flight paths are quickest and cheapest to get you where you want to go. In particular, I like their visual flight map where you can see all the flight options out of a city and at what cost they come (say, you’re in Oslo and don’t know where you want to go next). They also let you see a whole month worth of flight options leaving a particular city. E.g. here is a list of flights out of Istanbul in August this year.

Jetabroad - This is my favourite service online for discovering multi-city flight bookings. They are also usually the cheapest or close to it. Can highly recommend this service. When thinking about opportunities in this space, one reason I sometimes still book with the airline or a travel agent after using Jetabroad even thought the prices are similar is the former options allow me to hold a fare before paying.

Bestflights - This company has a very time intensive though useful way of aiding in the flight booking process. They list all the sale fares of each of the different airlines. Choose your region. Choose your range of sales fares (usually >20) and enjoy reading through the deals (e.g. European sale fares). The process is painful though I do tend to use it each time I book flights. I have actually also tried to book through them to reward them but found their booking process tedious because they require you to put down a deposit before getting the full details of the fare when actually booking it. I also didn’t find their sales staff as nice as my regular travel agent. As a result, I use their information and book elsewhere (again something to consider for opportunities in this space).

Kayak - Good for multicity flights but not great. It seems mildly cheaper and more useful when booking hotels and flights in and around Europe.

Hipmunk - Very funky flight booking engine. Like Adioso, tries to give a range of more flexible search options. I still think the process they use is far from solved though as I can often find far cheaper flights either booking direct through the airline or on other sites like jetabroad, bestflights, kayak or my travel agent. As a result, I end up using Hipmunk as a discovery method in some cases (a risk of creating a useful tool in this space).

Adioso Flight Bookings -  Whilst this site is still in beta, I like what they’re trying to do. They give a range of far more useful flight search options than the standard painful dropdown menu seen on most flight booking engines in the world. Say you know you want to go away this weekend from Sydney but dont know where. Or say you don’t even know when but you know you want to get away soon. A search like this on Adioso could help you outlining a range of the cheapest flights out of  Sydney over the coming months.  It also lets you create flight alerts for places you want to go to be sent to you by email.

Matrix.itasoftware.com – A very helpful tool for seeing a range of international flight booking options. Suggested by someone in the comments below.

Flight Fox - A site that lets you create itineraries for users of the site to match with airline fares while competing for a set prize.

Travel agents and Airlines Direct – I still often use a travel agent to finalise my bookings. I usually don’t waste too much of their time and they are quite happy to organise fares for me for particular prices if i go to them with the details after using the methods above. I also always check the price directly on the airline websites.

Finally, if you are after the absolute cheapest fares, you can also use Skyscanner.ru or Trip.ru which always seems to have very cheap fares. You’ll need to speak Russian to be able to book on these sites.

The Cheapest Way to Find and Book Hotels and Hostels

booking.com / orbitz / kayak.com / room 77- These sites are where you’ll discover the hotels you want to stay in and make bookings online. My preference for search is Room 77. My preference for booking is Booking.com and Kayak as they are often the cheapest. Search around and compare to find your best deals. You also usually get good cancellation options booking in advance with these sites and they don’t charge your credit card until you check out of the hotel.

Tripadvisor - I pretty much never book a hotel anymore without checking tripadvisor. It is a little painful sometimes and not always trustworthy but it is a good resource if you can be bothered putting in the time to sift through the reviews. Sometimes I find the place I like on Tripadvisor before even searching the hotel booking sites above. Again, room 77 helps here as it integrates both.

airbnb / wimdu / VRBO - These sites are cool. They allow you to avoid hotels and book people’s apartments directly from them in other cities. Personally, I use Airbnb which has the best service and safety. I’ve used it in St Petersburg, Medellin, Hong Kong and Stockholm.

Priceline / Hotwire / lastminute - Whilst I am sure there is a way to use these sites effectively, I have never really been a fan of not knowing the place i’m staying before I pay. You used to be able to reverse engineer the secret hotels but this seemed harder the last time i tried.

Couchsurfing – Have done this plenty of times over the years and met some great people. I’ve never stayed on someone’s couch overseas but have had plenty of people stay at my place in Sydney. Good for meeting people overseas.

Other options for hotels include those daily deal type sites but I have not used them myself.

Deciding Where To Go on Your Holiday And What To Do

I use a combination of the research above, friends’ tips, tripadvisor, and email alerts to decide where and when to go. Again, I believe there is an opportunity here to help people make these calls more strategically.

In terms of what to do when you are on your holiday, there are a range of social travel startups popping up that can help you organise your time, plan your activities even meet people when you are there.  I also use Tripadvisor and lonely planet forums to find fun things to do in the places I visit. There is also a lot of value in just seeing what happens when you are in a new city so make sure you don’t overplan.

Vayable - A way to directly hire local guides for activities overseas.

Gogobot - This site is a social travel guide and planning website. It lets you see how your friends travel, what they recommend and what others also recommend. I have not used it extensively yet and it could fall prey to the problem of too much information if not done well but it does have some cool features.

Pinterest - I have been storing places I’d like to go on a board on pinterest. It also is a useful way for discovering places to go by searching.

Tripbod - Meant to be original travel experiences from locals overseas. similar to Vayable.

Wannaout - Unlaunched but could be cool.

Wanderfly - Similar to Gogobot and Mygola. Personalized travel recommendations.

Triptrotting - Similar to an idea a friend of mine Alex had a few years back. Meet locals overseas. His site is Meet Travelers though is still growing at this stage.

Evature - meet to be able to allow free-text search for online travel. Would be cool if they can get it working.

Citybot -  A way to get city guides on your iphone / android overseas. Still unlaunched.

Couchsurfing - Good for meeting people overseas.

This is the first of a series of blogs on the topic of travel. If you feel I’ve missed out on some useful options, please let me know or comment below as I’d like to improve this list over time. Please subscribe above if you’d like to hear more tips in the future.

Patent wars, let’s call them, are abounds. Samsung knows all about them with their Galaxy Tab 10.1 having been not allowed in Europe and Australia for half a year (“Australia court extends Samsung Galaxy Tab sales ban“). And Google bought Motorola who hasn’t made a successful phone in years (“Google makes money on Iphone, Motorola patents“).

The titans of the tech world are spending billions trying to maximise their competitive positions (“Google increases war effort against Apple, buys 1000+ patents from IBM“,”"Consortium led by Apple buys Nortel’s patents for $4.5 billion“). But why?

Mobile Communications Related Issued Patents (1993-2011)

The simple answer is that it is smart for them to do so. Patents provide inventors lasting reward for innovation by limited others from profiting from their inventions for set periods of time. Generally, I imagine that this has been a very successful law in encouraging innovation and I don’t want to suggest otherwise.

Where it gets interesting however is when companies make acquisitions, what happens to the patents of the target company. Below is a good example of where acquiring a company’s patents might have been a reasonably good idea for Yahoo.

“Though Brin and Page had a good meeting with Yahoo founders Jerry Yang and David Filo, former Stanford students, Yahoo didn’t see the need to buy search engine technology.” [In The Plex: How Google Thinks, Works, and Shapes Our Lives by Steven Levy]

Good move Yahoo. Missed opportunities aside though, the scenario above seems pretty standard in my books. A big company could buy a smaller company with the hopes that it can use the smaller company’s technology to reach more people. It also probably has more money to throw at developing the technology if it chooses to.

Now, let’s think about this scenario where I think the lines are a little more blurred. Patents can cover the most minute of inventions that may also be incredibly useful parts of bigger technologies.

“While Jobs could not stop Google from developing the Dream version of Android, he apparently was successful, at least in the first version of the Google phone, in halting its implementation of some of the multitouch gestures that Apple had pioneered. Jobs believed that Apple’s patents gave it exclusive rights to certain on-screen gestures—the pinch and the swipe, for example. According to one insider, Jobs demanded that Google remove support of those gestures from Android phones. Google complied, even though those gestures, which allowed users to resize images, were tremendously useful for viewing web pages on handheld devices.” [In The Plex: How Google Thinks, Works, and Shapes Our Lives by Steven Levy]

So Jobs may have stopped the multitouch gestures being allowed into Android phones. Now fast forward a few years.

“The iPhone was still the royalty of smart phones. But as Android became the fastest-growing smart-phone operating system—by mid-2010, Google partners were selling 200,000 a day—Jobs increased the pressure. He sued the handset manufacturer HTC, alleging that its Android phones used techniques patented by Apple. Within days, Google rolled out a change in Android’s operating system: it would now support the pinch and stretch multitouch gestures that Jobs had demanded that Google remove. The capability had been hibernating inside the code base, and all Google had to do was switch it on in the next upgrade. Schmidt maintained that those developments were part of the normal course of competition. “ [In The Plex: How Google Thinks, Works, and Shapes Our Lives by Steven Levy]

What we see here is one company being limited from implementing technology created by another company. At least for some time. Regardless of whether Google’s intention is to make cash or don’t be evil, Google have not made some incredible innovations over the years that have significantly benefited billions of people. Stopping them implementing a small though useful technology here created by Apple stopped them from improving the Android technology for a period of time. This in turn affected tens of millions of people.

Apple and Google are both massive companies. Apple in fact had more cash on hand than the US Federal Reserve late last year. They’re not going hungry tonight. But, they’re obviously still protected by patent laws. I’m certainly not saying that they shouldn’t be but the example above shows that society can lose out in some cases due to reduced competition. Though, potentially just in the short term.

Taking it one step further than the example above, when companies specifically buy companies to acquire patents so they can block companies launching products, you really have to wonder if it is going too far. To be fair though, Google does seem to be very open with a range of their intellectual property.

Keeping this in perspective though, it is clearly a first world problem.

He discussed people always wanting something in principle but typically not wanting to act to get that something right now. There are many things in life where we are designed not to care about the right things. Typically long term decisions, decisions far in the future, decisions that take alot of time, decisions that have high complexity and decisions that we don’t have much impact over in the short term.

He discussed his own personal problem of liver cirrhosis which required him to take a painful dose of medicine regularly for 18 months. He went about motivating himself to take the injections on time by pairing the taking of the medication with watching his favourite movies. He calls this principle reward substitution.

Would you prefer a half box chocolate now or a full box in a week? Most people say a half box now. Yet phrase it as a half box in a year or a half box in a 1 year and a week, and people switch their preferences.

Part of the success of the Toyato Prius over its competition was due to how it looked. It looked distinctly different. It gave people ego utility. People were able to signal to others that they cared about the environment whereas this was not possible with other cars as they looked the same. This illustrates that making some things visible can improve behaviour. It shows that finding other types of motivations can make a difference.

Find other types of motivations. We care about competition, completion, image, accomplishment. These things motivate. Money, Guilt, Shame, Social proof, Ego.

Thinking about the global warming problem. It is a very hard problem to solve. This is because it is far in the future, it is uncertain, it will likely not ultimately affect us,   it requries a change in entrenched behaviours and individually we can have very little impact on it.

Study – How do you go about getting patients that have had a 2nd stroke to take their medication? Apparently informing them that they have a high chance of death if they don’t take it is not enough. Some ideas are to notify kids if you don’t take it or give a reward if you take the medication. Sometimes a gift is more motivating than cash of the same value. You could also make something disappear if they stop using it, eg mobile phone not working. You could use fear of dying. you could create social connection to other people taking the medication. You could show a picture of someone getting fed today in a poor country if you take your pill (and not give the idea that they child will not be fed if you don’t). What worked best was letting people participate in a lottery related to the taking of their pill. On the first day they didnt take it, they were informed that they had won the lottery. They were then informed they wouldn’t be awarded the prize as they had not taken their pill. Taking the medication increased significantly.

Think about how long we need to sustain the motivation and what happens if we stop.

There is a point where giving money makes people moitvated (e.g. giving $1000 to floss your teeth, flossing would increase for most people).

A 1/1000 chance to win a thousand dollars is felt as more motivating than the same $1 value of the chance.

Regret is the emotion where you imagine another state of your life.

Study – Gold, bronze, silver example at the olympics. Gold and bronze are observed as the happiest. Why? Silver imagines themselves in the gold state and bronze is just happy to have avoided 4th.

Self control contracts are powerful. Ulysses and the sirens example. He knew he would be tempted so he tied himself to the ship.

Study – Rats were trained to press two buttons. One was the press a green lever and get a pellet of food. Another lever was to wait ten seconds and get ten pellets of food. Rats often chose the instant gratification of the first lever. But when a no temptation lever was added which disabled the green lever, some rats were able to press it. Implication is that imposing self control contracts can be powerful.

Examples of innovated product design using these principles – We are a different person at night compared with 6am in the morning regarding aiming to go for a morning run. the product called Clocky (hard to find alarm, have to find it to turn it off). Alarm clock connected to bank account and charity you hate. Imagine a website that is connected to your parents that tells them if you are watching porn.

People need red buttons. Need to encourage self control.

Not always about habit, it is about what decisions we can make that are sustainable.

Dieting vs no smoking example. Need different motivations for different goals.

Contract example of sending letter to mum about heroin use. You agree to send your parents a letter, write the letter and give it to a company that is bound to send it if you fail a drug test at any time in the future (tests are random). This idea was stopped as it created violations of human rights but it was also effective.

I recently attended Startuponomics in San Francisco, a conference run by Dan Ariely on behavioural economics, decision making, irrational thought, motivation, influencing behaviour, and how people think. I learned a huge amount of interesting information at this conference and I hope this little series will help share some of it for those interested. Some posts will be longer than others as they are summarising 1-3 hour discussions. Subscribe to my rss on the right to ensure you don’t miss out! Click here to unsubscribe.

Now, let’s get on with it.

Dan Ariely – Day 1

Think of behaviour as a flow or process. Where can we intervene?

He discussed external vs subjective reality. Your intuition about how the world operates is biased.

Study - Table length illusion example. E.G. told visual illusions are X, but our brain keeps seeing Y.

Example about box checking. Check the box if you don’t want to participate. Opt in vs opt out. The default is to not check the box no matter what the question is. Consider the fact that we are less active than we think in making our decisions.

The environment of the interface has a massive impact on the customers decision. If questioned, we come up with stories about what we chose even though our reasons may not be real.

Study – Long term medication company. Drug rep example. generic vs branded medication. Trying to make people do something different to what they’re doing. 80/20 branded / generic went to 10/90 after telling people that they had to choose one or the other compared with asking them to choose generic which caused little change.

When discussing it, people lie or get it wrong. People behave as if it is expensive to return the postcard when it would save them money. Understand how defaults work. Question about assuming change and if people still didn’t respond.

Study – Physicians example where physicans were told that they had made a mistake a day prior with a patient – would they call them to inform them to take a pain killer? 60/40 in group 1. All did nothing in second group when decision was nothing, ibuprofen or some other drug. Defaults are important. But when you add more complexity to the decision to do nothing or not, more people do nothing. [Ask Question about competing principle economist example.]

Study – He gave an example about reducing the urinal bed pans in hospital (maybe do it by changing the default). Default matters alot in things that we pay alot of attention to. As things become more difficult we want to do less and as a result interface designers decide for us.

Study -The jam study. 6 or 24 Jams. 40/60 approach the table in each case respectively. 1.4/1.5 try jams. 30% /3% actually buy. ” I’ll do it next time” is more common amongst the high choice option. Excitement can be overturned by too much choice. Technically more options fits more tastes but also results in confusion. Options increase utility up to a point then it goes negative. Then it reverts to the default of nothing if too much choice.

Study – 401 k example. A ways to make less contributions is to make it opt in rather than opt out. Give lots of options. Make the decision seem important. [Ask question about what effect importance has]. Think about how much time we actually spend on important decisions. Not enough (marriage kids university).

Switch with opt out option works.

Lots of software is resistant to changes. Think about how we build software as a result of irrationality.

Defaults discussion 

Default is no mail delivery. If we want more people on mail, we should change the interface.

Default is click here to not receive offers from us.  Similarly, this can be manipulated.

Default is not having a free trial or access to an article. One idea is to sign them up automatically and tell them to enter their details to complete the process.

Can you think of any more?

Zero has a special place in people’s hearts. Don’t train people to think the service costs nothing. Give it a value. Make people work for it, fill out a survey to get it free might help people value their trials at ii (though it also may reduce sign ups). We can do this after we have their email address.

Study - Cheap airline example where a long one step interface with matrix style options was made into a two step process with other changes. The idea to break it into two screens and changed the previous premium option to basic and the others to basic (minus x,y, z).  Very successful (so much so that results not revealed). Used loss aversion in the process. How to trial this on our site?.

We have lots of individual differences but are tuned to the differences. We are all more similar than we think.

There is a trade off between how many people finish versus the quality of the data.

Study – The pre holed card for caraway example. Pre-punched cards (10 car washes to get one free, 20 to get one free with 10 pre-punched) – people think they’re half-way through and complete the second lot more.

Study - The WordPress.com example… Should they create a new step in the sign up process to let people choose their theme. Work hard before you do anything else. Ikea effect.

If you believe in people being irrational, how do you feel about forcing people to do things?

Influencing decisions once versus habits. The 3 vs 10 reasons you love someone example. Participants asked to list either 3 or 10 reasons that they love someone. The way we are made to think about something for time can change our opinion since this changed how much they said they love the person when surveyed afterwards. The extent to which we don’t know our preferences is quite large. Interface makes the difference. In this case 3 was more powerful as people couldn’t think of 10 reasons often.

E.g. Think about 15 ways this class could be improved. What if you do it in week 4 vs 12, they forget. time lapsed is crucial.

Study - How often do you floss example. Giving a scale can influence their future depending on where on the scale they fall (so you can manipulate where people will fall on a scale and how they will act by varying the scale). Then more people went to dentist when low on the scale. Scales can Shape behaviour.

Study – Financial advisor risk attitudes example. Asking people to remember bad things before asking preferences can have an impact. “stock market example”. Can manipulate emotion in this way. But once answered they take it very seriously. They will then rely on it.

When market research about what they think they think through surveying they will make it up on the spot. The way you ask the question really influences the answer. Observing preferences is very different to directly asking for them.

Computer processor example. Audi configuring example. People don’t actually know they preferences for buying cars and the average car bought was always close to the default options (several different default car options were tested (e.g. base including leather seats / base not including leather seats).   People don’t know their preferences. Need to get people to committ while they are primed.

I’m not certain I’ll continue the series on this blog (i was only planning on doing via email), so if you are interested in hearing more about the talks, please like this post or post a comment below.

Edit – The next article in the series is available here – Self Control, Motivation and why Bronze is better than Silver

Amazon buys Book Depository, Ebay buys Magneto. Google, Facebook and Yelp start Groupon style deals websites. Google starts Google +. All in 2011 and all in my short term memory.

All you need to do is read Techcrunch and within no time you’ll see many more stories along these lines. But so what right? Big companies have been buying small companies and copying the ideas of others for hundreds of years.

A history of Internet Mergers

Since the Internet began its meteoric rise in the late nineties, plenty of Internet companies have been bought and sold. It probably started with big non-internet companies buying successful Internet companies at massive premiums to try and get in the game (think AOL / Time Warner and Myspace / News Corporation). That didn’t turn out too well for the buyers but thankfully a few guys are most likely downing Caipirinhas on some Brazilian island thinking of Rupert Murdoch.

Somewhere along the line, Internet companies began buying each other or competing directly for the top spot. Think of the search engine race; Yahoo, Google, Askjeeves, Lycos, Metacrawler (click here to see where they are now). No prize for whoever guesses the winner of that battle.

Friendster, Myspace, and Facebook…. I could put a “click here to login to Facebook” button to show who won that one.

For a more complete look at the online landscape of buyouts and mergers see this brilliant mashable post.

Network Effects Emerge

However, until the last few years, I couldn’t have confidently said very many Internet companies had won their respective battles (though I could have predicted some were likely to win – Google, Amazon, Skype and eBay come to mind).

It is true that these companies will still have to hold their position due to the very low switching costs online. But, the winners of the Internet game (so far) have grown to sizes where another factor really starts coming into play. That factor is network effects.

Network effects increase the value of a product or service as more people use it. They create barriers to entry for competitors looking to break into the space. And finally they provide a platform for these massive companies to break into new markets.

How the Internet Landscape could change

Seeing the very fast movements that great start up ideas can make on the Internet has interested and inspired me for years. Think Google Maps, Facebook, Tripadvisor, Airbnb, Groupon, online travel booking, Evernote, Twitter, Kickstarter. If you don’t know any of them, Google them. The speed at which good ideas have been able to get going has also increased as the Internet has grown older.

But now that Google, Amazon, Ebay and Facebook (amongst others) have grown to the sizes that they have, they have the customers, cash flow and technological edge to run the show unless start ups really put up a fight (that they may be unable to win). They could emulate most of the ideas above if they wanted to and then expand them onto their network of users.

5 Theories about Innovation Online

When Amazon recently bought Book Depository, I was genuinely a little annoyed. Book Depository had a completely different business model by offering free delivery worldwide and cheaper books. They also didn’t ream Australians for living far from the US. Now that Amazon owns them, this may still continue but only if Amazon allows it to. Whilst the Depository family might be on an island spending the purchase price (and good on them), this example shows the extent of Amazon’s power. And with little in the way of a multinational anti-competition organisation, who will stop them?

Theory 1 - If you do something interesting online and want your idea to go to completion, you’ll may have to withstand the forces of multimillion dollar offers to get it there.

Theory 2 - The Internet superstars can set the course for a large proportion of online innovation.

Facebook deals, Google offers are both direct copies of Groupon’s business model (which is probably a direct copy of someone else). Thankfully for the social networking giants, copyright protects the form and not the idea.

So if you’re a start up with ideas in the making, do it knowing that if one of them does take off, it is now very simple for Facebook or Google to copy the idea, maybe do it better and then launch it to a worldwide audience. If you’ve managed to grow a start up that has 10,000 users and $1M a year in revenue, your idea could be worth massive multiples of this to a company like Google or Facebook.

Theory 3 - If you have a start up idea that is likely to succeed, consider your launch plan carefully.

Theory 4 - It is perhaps easier and cheaper for them to simply copy your idea and trial it on their network than to buy your company.

Theory 5 - Your idea is worth more to them than it is to you. If you’re going to sell, don’t sell cheaply.

As an aside, I’m not certain any of these theories are anything but adaptations of ideas already visible in the real world. But I do feel that there are very few ideas that a company like Google or Facebook couldn’t go after online.

These people may be exchanging time for the ability to purchase products and services now, or perhaps to achieve status or secure future riches for retirement. If you fall into one of these categories and don’t enjoy what you’re doing, consider thinking about the following. If you enjoy what you’re doing, this probably isn’t very relevant.

Your Hypothetical Trip to Antarctica

Imagine you have been given an offer. If you choose to accept the offer, you’ll be taken on a hypothetical trip to Antarctica and you’ll be given an endless supply of  money. However, as with most hypothetical amateur thought experiments, there is a catch. Three in fact. They are as follows:

1. There are no other people in hypothetical Antarctica and you are not allowed to communicate with any people back in the hypothetical country you live in. No internet, Facebook, Twitter, Forums, or communication of any kind
2. Hypothetical Antarctica has a limitless supply of your favourite brands, products, property, and services (and you have endless money to purchase with)
3. You cannot visit hypothetical Antarctica, save some money and return to the country you are from.

Do you accept the offer?

My guess is that most people would not and I think there are a range of reasons why. Boredom, no interaction with people, no purpose in life, no sex, and no ability to have children all come to mind (and I’m sure there are many i’m not thinking of). However, if you exclude most of these reasons and just think about the loss of interaction with people, one issue becomes pretty clear for me.

Brands, products, expensive cars and status would all shrink heavily in value with no one around to witness them. For me, only truly useful goods would hold their value. As much fun as driving a Lamborghini through a crevasse in Antarctica might be, if people had to give up time with their friends to make it happen, selling one-way tickets on the hypothetical Alaska boat  would become alot harder.

To me, this illustrates that our friendships are ultimately more important than our desires for material possessions, status, and future riches (if given the choice of having one or the other). Yet, some people choose to work 60+ hours a week during the best years of their life doing something they don’t enjoy while their friendships suffer and the years of their life tick away. What they are saving for and who will share it with them is anybody’s guess.

There are so many what ifs and other rebuttals that come to mind that could weaken this argument and I might be completely off the reservation here but I think the basic gist is interesting. So, if I find myself not enjoying large chunks of my time on a regular basis and effectively find myself sacrificing something I enjoy (like time with friends) for material possessions that are not useful, status or future riches, I’ll think of Antarctica.

Google has been public for several years and knows alot about me. And you. What web sites you browse, what you write in your emails, your preferences, your phone number, your personal details. The fact that they also know this about the rest of the world for some reason gave me comfort.

The fact that they also had hundreds of millions and now billions in search revenue also made me feel good. Would they bother jeopardising that in order to sell my data to people? I doubt it but maybe.

I’m also generally not too worried about it which helps.

That said, Linked In’s IPO and Facebook’s coming IPO have got me thinking. Linked In’s first day multiple of 300-600 times earnings implies that public shareholders either plan on making a lot more money than they currently are from these companies or that they love losing buckets of cash in the near term. Or that they’re speculating it will go up more like in the 1998-2001 internet boom.

What i’m wondering is what are they going to have to do to raise earnings in the manner they’ll need to to justify their valuation? Surely they’ll have to start making some decent money somehow?

Will Linked In start calling me and offering me jobs? Will Linked In or a post IPO Facebook sell my data to companies to advertise to me? I was less worried about these things with their private company CEOs at the healm and a smaller group of VC investors and rich Goldman Sachs clients as shareholders. But trading at multiple hundreds times current earnings, I’m not so sure. The profit growth has to come from somewhere.

With the post IPO Google, I not only didn’t think about much about this but I effectively didnt’ have a choice unless I wanted learn Chinese and try out Baidu.

With Facebook and Linked In I do have a choice. I guess less so with Facebook because it is a great tool for staying in touch with people. Linked In, however, I would happily ditch in a heartbeat if the concerns above worried me.

Luckily, they don’t worry me too much so i’m unlikely to leave these sites.

But I imagine there are millions of people out there that these concerns do worry. Will people use these sites the same way now that they’re publically owned? Should they? Will they do things differently? Are Linked In and Facebook less valuable as public companies at such high valuations?

Either way, Goldman Sachs who has already unloaded its Linked In shares and the pre IPO shareholders look likely to profit.

Users of Facebook and Linked in? I wonder.

It doesn’t come as any surprise to most of us that from time to time, we all seek the help of experts.  But, how would a cave man have felt about needing to consult another cave man about his sore back or needing to attend a popular cave convention to improve his hunting skills?

Between now and whenever then is, something has changed. The caveman was in control of his own destiny.

So what’s changed?  We now have very different living standards. I’m typing this in an apartment 60 odd metres off the ground on a windy night and I’m quite comfortable. And warm. Would I know how to build this shelter for myself if relied upon? No. Am I happy someone knows how to? Yes.

The obvious answer is specialisation. Knowledge specialisation if you like. Certain people I know know more about molecular biotechnology or Russian literature respectively than the caveman probably knew about the world around him. But could they survive if left in the jungle? I’m pretty sure they wouldn’t want to try.

But why write this now? Wondering this myself, I questioned what made me think about the issue. Everyday, people seem to be looking to others for the answers to problems that they should probably try to solve themselves. I think this is more the case now than 10 years ago but realistically my 16 year old self probably wasn’t the best judge.

I notice myself doing it these days. More so than I used to. Thinking back again, the caveman probably still learnt some skills from a small group of others but to imagine him needing to spend 5 years studying before he felt competent to go about his life is a little unbelievable. Similarly, 50 years ago I’d say people still sought out the confirmation of experts. In a book called Influence, the author labels one of his 8 main tools of persuasion as authority. So there is evidence that people have a tendency to both seek and submit to the authority of experts.

But I think it is changing. Becoming further entrenched. Everything now needs to be backed up by a source. By an expert. By Google. Just Google it. At lunch today, instead of remembering the French translation of scallops (don’t ask), I nearly got my iPhone out and Googled it. When I was in Perth recently and the Budget car rental was out of Navmen, I was genuinely worried until my 14 year old self’s navigation skills kicked in.

So we’re super specialised. Super technologised. Yes, we benefit from it. I love being able to perfect my fruit ninja skills in my iPhone dojo on the bus home. But is it worth it? If asked to recreate the gadgets of the world we live in without the proprietary knowledge of the world’s biggest companies, I know I couldn’t. Cameras. LCD screens. Computers. Mobile Phones. Best of luck with that.

In my opinion, we’re now on more of a roller coaster ride than past generations used to be. Somewhat out of control but enjoying it. Less time to think for ourselves. We need degrees to say we know how to do something. To imply to others we’re worth listening to. People cling to intelligence like it is the passport to a secret cave of untold riches and happiness when it is available in spades.

I’m not necessarily saying that we’re not still in charge of our own destiny or that we’ve lost control. But I am saying that my preference over the coming years is going to be to understand things myself and rely on my own abilities. You get one life, I don’t think I want to spend mine following others.

Only comment below if you’re doing it from a prereleased iPhone 5 in the middle of a desert somewhere.

You can download the 2011 letter to shareholders or visit the letters archive.  Interesting quotes from this year’s letter are below:

Page 4, paragraph 1:

Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.

This “what-will-they-do-with-the-money” factor must always be evaluated along with the “what-do-we-have-now” calculation in order for us, or anybody, to arrive at a sensible estimate of a company’s intrinsic value. That’s because an outside investor stands by helplessly as management reinvests his share of the company’s earnings. If a CEO can be expected to do this job well, the reinvestment prospects add to the company’s current value; if the CEO’s talents or motives are suspect, today’s value must be discounted. The difference in outcome can be huge. A dollar of then-value in the hands of Sears Roebuck’s or Montgomery Ward’s CEOs in the late 1960s had a far different destiny than did a dollar entrusted to Sam Walton.

Page 7, second last paragraph:

Our second advantage relates to the allocation of the money our businesses earn. After meeting the needs of those businesses, we have very substantial sums left over. Most companies limit themselves to reinvesting funds within the industry in which they have been operating. That often restricts them, however, to a “universe” for capital allocation that is both tiny and quite inferior to what is available in the wider world. Competition for the few opportunities that are available tends to become fierce. The seller has the upper hand, as a girl might if she were the only female at a party attended by many boys. That lopsided situation would be great for the girl, but terrible for the boys.

Page 8, paragraph 2:

In addition to evaluating the attractions of one business against a host of others, we also measure businesses against opportunities available in  marketable securities, a comparison most managements don’t make. Often, businesses are priced ridiculously high against what can likely be earned from investments in stocks or bonds. At such moments, we buy securities and bide our time… We have been able to take money we earn from, say, See’s Candies or Business Wire (two of our best-run businesses, but also two offering limited reinvestment opportunities) and use it as part of the stake we needed to buy BNSF.

Page 9, paragraph 3:

GEICO also jump-started my net worth because, soon after meeting Davy, I made the stock 75% of my $9,800 investment portfolio. (Even so, I felt over-diversified.)

Page 14, paragraph 4:

A housing recovery will probably begin within a year or so. In any event, it is certain to occur at somepoint… At Berkshire, our time horizon is forever.

Page 16, 3rd last paragraph:

Our borrowers get in trouble when they lose their jobs, have health problems, get divorced, etc. The recession has hit them hard. But they want to stay in their homes, and generally they borrowed sensible amounts in relation to their income. In addition, we were keeping the originated mortgages for our own account, which means we were not securitizing or otherwise reselling them. If we were stupid in our lending, we were going to pay the price. That concentrates the mind.

If home buyers throughout the country had behaved like our buyers, America would not have had the crisis that it did. Our approach was simply to get a meaningful down-payment and gear fixed monthly payments to a sensible percentage of income.

Home ownership makes sense for most Americans, particularly at today’s lower prices and bargain interest rates. All things considered, the third best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks.

But a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender – often protected by a government guarantee – facilitates his fantasy. Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford.

Page 18, paragraph 2:

Even before higher rates come about, furthermore, we could get lucky and find an opportunity to use some of our cash hoard at decent returns. That day can’t come too soon for me: To update Aesop, a girl in a convertible is worth five in the phone book.

Page 18, paragraph 5:

Within ten years, I would expect that $376 million to double. By the end of that period, I wouldn’t be surprised to see our share of Coke’s annual earnings exceed 100% of what we paid for the investment. Time is the friend of the wonderful business.

Page 18 to 19:

It’s easy to identify many investment managers with great recent records. But past results, though important, do not suffice when prospective performance is being judged. How the record has been achieved is crucial, as is the manager’s understanding of – and sensitivity to – risk (which in no way should be measured by beta, the choice of too many academics). In respect to the risk criterion, we were looking for someone with a hard-to-evaluate skill: the ability to anticipate the effects of economic scenarios not previously observed.

The hedge-fund world has witnessed some terrible behavior by general partners who have received huge payouts on the upside and who then, when bad results occurred, have walked away rich, with their limited partners losing back their earlier gains. Sometimes these same general partners thereafter quickly started another fund so that they could immediately participate in future profits without having to overcome their past losses. Investors who put money with such managers should be labeled patsies, not partners.

Page 19, paragraph 3:

Over time, we may add one or two investment managers if we find the right individuals. Should we do that, we will probably have 80% of each manager’s performance compensation be dependent on his or her own portfolio and 20% on that of the other manager(s). We want a compensation system that pays off big for individual success but that also fosters cooperation, not competition.

Page 21, paragraph 1:

We have that flexibility because realized gains or losses on investments go into the net income figure, whereas unrealized gains (and, in most cases, losses) are excluded. For example, imagine that Berkshire had a $10 billion increase in unrealized gains in a given year and concurrently had $1 billion of realized losses. Our net income – which would count only the loss – would be reported as less than our operating income. If we had meanwhile realized gains in the previous year, headlines might proclaim that our earnings were down X% when in reality our business might be much improved. If we really thought net income important, we could regularly feed realized gains into it simply because we have a huge amount of unrealized gains upon which to draw. Rest assured, though, that Charlie and I have never sold a security because of the effect a sale would have on the net income we were soon to report. We both have a deep disgust for “game playing” with numbers, a practice that was rampant throughout corporate America in the 1990s and still persists, though it occurs less frequently and less blatantly than it used to.

Page 21, final paragraph

Part of the appeal of Black-Scholes to auditors and regulators is that it produces a precise number. Charlie and I can’t supply one of those. We believe the true liability of our contracts to be far lower than that calculated by Black-Scholes, but we can’t come up with an exact figure – anymore than we can come up with a precise value for GEICO, BNSF, or for Berkshire Hathaway itself. Our inability to pinpoint a number doesn’t bother us: We would rather be approximately right than precisely wrong.

…(I always love explanations of that kind: The Flat Earth Society probably views a ship’s circling of the globe as an annoying, but inconsequential, anomaly.). You can be highly successful as an investor without having the slightest ability to value an option. What students should be learning is how to value a business. That’s what investing is all about.

Page 24, paragraph 2:

Furthermore, not a dime of cash has left Berkshire for dividends or share repurchases during the past 40 years. Instead, we have retained all of our earnings to strengthen our business, a reinforcement now running about $1 billion per month. Our net worth has thus increased from $48 million to $157 billion during those four decades and our intrinsic value has grown far more. No other American corporation has come close to building up its financial strength in this unrelenting way.

By being so cautious in respect to leverage, we penalize our returns by a minor amount. Having loads of liquidity, though, lets us sleep well. Moreover, during the episodes of financial chaos that occasionally erupt in our economy, we will be equipped both financially and emotionally to play offense while others scramble for survival. That’s what allowed us to invest $15.6 billion in 25 days of panic following the Lehman bankruptcy in 2008.