Intergenerational discount rates

I’ve been idly wondering about how philanthropic behavior and the saving patterns of parents should influence our understanding of intergenerational discount rates. It seems that when people do selfless things for their progeny, or simply for posterity, they are exhibiting very low to zero intergenerational discount rates; at the very least it seems to complicate the transition between investment preferences within an agent’s life and those across human generations.

Why have I been thinking this?

These days I’m working on a project that’s being billed internally as a follow up to the highly influential Stern Report, which was commissioned by the UK government and published in 2006. In a nutshell, the Stern Report attempted to understand the scale of climate change as a market failure.

Although our understanding of the science is always evolving, climate change is often understood as a problem that has causes today, and effects later on. There is thus the immediate challenge of comparing temporal apples and oranges – how do you compare the benefits of the causes with the damages of the effects if they don’t happen at the same time?

For economists and most social scientists, the answer is discount rates. Conceptually, discount rates “discount” the future – i.e., between $1 today and $1 in a year, we’ll value the $1 today higher than the $1 in the future – for a variety of reasons: the future is uncertain, for example, we may never get that $1; there are productive investments available – if you give me a $1 today there is a good chance I can turn that into more than a dollar by investing it; and other reasons as well.

The question – the $1,000,000 question – is what the discount rate should be. A very low discount rate values the future almost as highly as the present. A high discount rate amplifies the present significantly – future payoffs or costs will barely register.

The application to an economic understanding of climate change should be immediately obvious. If the causes (the production of goods and services – good things) are today, and the effects (destructive weather and climatic effects – bad things) are tomorrow, the choice of a discount rate will completely determine whether or not we should adjust our path.

The biggest critiques of Stern Report were that they chose a very low discount rate. They had good reasons, but many economists essentially pointed out that they were begging the question. Yes – with a low discount rate, Climate Change is Bad. Their contribution was essentially to estimate the scale of the market failure at their very low discount rate.

At the same time, my own thoughts have been changing rapidly. I used to be on the carbon price everywhere train – but it appears that this is not politically feasible. Carbon prices may be possible – i.e. through things like gas taxes or permitting fees that effectively collapse to an economy-wide price on carbon. But personally, I’m now turning towards technological progress as the only feasible source of solutions to GHG emissions. That has different policy implications that I’m only beginning to grasp beyond “let’s spend a lot of money figuring it out”.

Experiential Companies

This post was prompted by a recent article about design at Google in Fast Company. Apparently, prior to Larry Page becoming CEO, there was real fragmentation in Google’s design across its various products. When Page took the helm, he made unifying the design vocabulary, in order to provide a consistent experience, a major priority. The goal was to become an “experiential” company, like Apple – one whose relationship with customers transcended isolated uses of their products and interfaced with whole swaths of their lives.

Experiential companies are a category beyond “product” companies. Rather than being oriented around a particular “job” in a customer’s life, they are oriented around many categories of the customer’s life, and build linkages between their products to make it easier for the customer to bring the company with them (i.e. to continue to use the company’s products) when they change contexts in their lives.

For example, a powerful “linkage” between products is to have a common user interface or user-facing design vocabulary – if you know how to use one product, you know how to use another – making it massively easier to adopt new products from the same company. Sharing data between products, or providing native interactions between them, also strengthen the relationship. A company’s products become a network in and of themselves with all the attendant competitive benefits.

To qualify, the company needs to have clearly different products – not just different features or offshoots of the core product. Otherwise you’re not breaking into new customer contexts.

As a note, I’m mainly thinking of consumer-facing companies, not enterprise companies – but if you think creatively it’s possible to view these thoughts applying to the latter, and indeed I’m sure there are enterprise-facing firms that would fit this bill.

Apple is the quintessential “experiential” company, but I would argue that this aspect of it is in decline. You don’t just use Apple products, you experience “Apple”. Apple has come to define so much of our lives because their many products serve different jobs in our lives – to play music and movies, surf the web, make calls, etc. Apple’s products are great in isolation, but the linkages helped fuel their expansion. Your iPod connected to the iTunes store on your Macbook, which was backed up by your Time Capsule, for example.

But over time, Apple’s products are losing their relationship with each other. You use your iPhone, but its relationship to your Macbook Air is becoming more tenuous.

Google is becoming, I think, the most pre-eminent experiential company. There are extremely strong linkages across their products, and they capture our interest in so many different contexts of our lives – pretty much whenever we use the Internet, for whatever purpose. Send an important email? Watch a funny video? Get car directions? How about get a funny video sent over gchat right after you send that important email – you can watch it right there.

Yahoo, on the other hand, is a poor example of this. It’s hard to see how Flickr and Tumblr (admitted only recently acquired) mesh together or how Delicious did when it was alive.

The bar is high. There aren’t that many companies that can (a) make multiple successful products and (b) create deep linkages between them.

My understanding of the product / business development sequence

Stage Product Goals Strategy Type Optimal Financing Tidbits from Clay Christensen
Problem / Solution Fit  Listen to market. Initial prototypes.  Emergent. Iterate quickly and find what works.  Seed. Want patient investors. Don't want investors that will demand growth.  Find a customer “job” that is either not served, or overserved by existing products (and that can be adequately served at much lower price point).
Product / Market Fit  Release MVP. Iterate. Place “offers” in front of customers and validate both WTP and that necessary margins can be met.  Emergent Seed  Be patient for growth, impatient for profit.
Scale  Capture market share.  Deliberate. Once what works has been found, memorialize it and develop process model around it.  Series A / Expansion capital. At this stage, taking larger sums of money from investors that will demand growth is in alignment with the business goals.  Pay attention to the weakest and strongest points in the value chain, as opportunity will migrate from strong to weak over time.

 

Twitter #conversation

A comments platform powered by Twitter.

Twitter is everywhere on the web. Twitter cards and other features allow Tweets to get distributed off of Twitter’s properties into other websites, where they can be interacted-with. I propose that Twitter develop a simple comments platform, based on Twitter’s existing functionality, that could be integrated into any website desiring a comments feature.

Goals:

  • Engagement – this product would allow Twitter users to discover interesting conversations about content they are interested in (indeed – are in the process of consuming) while they are not on Twitter’s main feed. In addition, it would enable content providers to capture and display conversations happening on Twitter about their content on their own property (while still in a feed controlled by Twitter).
  • Acquisition – web users consuming content will be exposed to Twitter in a new channel and invited to participate in a novel way.
  • Revenue – this feature would provide more Tweet impressions and would also expose a new set of “timelines” with which to integrate native ads.

Functionality

  • List of Comments. User avatars and handles listed along with comments.
    • Comments will not be displayed chronologically.
    • They will be displayed by a custom ranking having to do with activity and influence, designed to surface the most interesting conversations going on about the content
  • Before a comment is made, the user is asked to sign in. If the user is signed in on the browser they will comment with that account
  • Before a comment is made, the user will have the option of replying to a user or not.
  • When a comment is made, it is published both as a Tweet (which goes into Twitter’s “main feed”) and as a Comment (which stays on the site).
  • When making a Comment, the user will not be restricted to any character limit (or the character limit will be longer than 140 characters, at some length appropriate to a comment). If the length of the comment/Tweet, with the appropriate handles, is longer than 140 characters, the Tweet version of the Comment will be automatically shortened and will include a link to the larger Comment
  • Tweets made outside Twitter #conversation that fit any of the following criteria will also be displayed in the comments section on the web property
    • include the link to the page, or
    • are a reply to
      • a Tweet with a link to the page, or
      • a Tweet originating from a Comment on that page
  • There are at least two and potentially three “views” to consider for this content:
    • In the comments section on the web property using Twitter #conversation
    • Twitter’s “main feed”
    • The “conversation” view for Tweets that are replies to each other
  • Ads could be displayed in the feed of Comments