With philanthropy we feel No Pain while have No Gain
| July 18, 2008 | |
| Alexander Ginzburg | Leave a Comment |
In my previous post, I’ve started a discussion about the negative influences of philanthropy, with the intention of projecting some of those insights on the Internet. I’ve argued that philanthropy causes inefficiency by preventing progress from happening. The main argument presented by those who oppose this notion, is that people enjoy helping others. Allegedly, this is a win-win situation, the needed receive help and the contributors get satisfaction. Therefore it seems that there is no justification to interfere with this process even if there is some inefficiency in it. However, I intend to contest this argument. In order to do so I will refer separately to the contributors and to those who need assistance. I will start with the later.
Obviously, people who need help would be better if their problems were solved rather than relieved. However, most of the philanthropic organizations deal more with relieving the suffering of the needed, rather than preventing it. There are a few reasons for that; I’ve mentioned some of them in my previous post, like inefficient distribution of resources and lack of legislative authority. Another reason is the state of mind of those organizations. It’s only natural for any organization to act for its self preservation. Therefore, they have little motivation to look for a cardinal solution to a problem that is the only purpose of their own existence. Moreover, a non-profit organization depends on its ability to collect contributions. As a result, it may prefer actions with immediate results in order to satisfy its existing contributors and to be more visible to the potential ones. Unfortunately, those actions may often be at the expense of a long term solution.
I will try to demonstrate this with an analogy from the world of medicine. One of the most important tools to the survival of a human being is pain. Its purpose is to notify about an existing or a potential threat to the body. This alarm assists us in avoiding possible dangers (like fire, sharp objects and cold water) and to treat already existing damage (like infections, injuries and diseases). The importance of this defense mechanism can be fully appreciated by observing a rare genetic disorder, called CIPA. People who suffer from this condition feel no pain. One can wonder whether it is a positive thing, but the fact is that the life expectancy of those people is much lower in compare to the rest of the population, especially among children. Many of them suffer from complications caused by relatively minor injuries that went bad due to a lack of treatment. Now, let’s compare the condition of the human body and the human society. Similarly to the body, the society can also suffer from failures, and it has its defense mechanisms as well. The discontent of some parts of the population can function in the society the same way as pain functions in the human body. They both serve as symptoms of grater problems. In order to stop the suffering permanently, the source of the failure needs to be addressed and not just the symptoms. Once the source is gone the suffering it has caused will cease to exist while dealing with the symptom directly won’t make it disappear on the long run. That’s why we don’t treat cancer with pain killers. As opposed to medicine, the “pain” felt by the society is not always referred to as a sign of a more fundamental problem, and consequently is no being treated accordingly. Philanthropy is one of the causes to that; typically it serves as a “pain killer” that blurs the senses of the society. It eases the “pain”, to a point that it is being ignored and as a result the source of it is being neglected. Instead of dealing with it at the beginning, while it is still minor, the problem gets worse until it can’t be relived with the “pain killers” anymore and only then, when it’s much harder an costly, it gets the attention it deserves.
To conclude my point, let’s see an example. Recently, a group of refugees from Darfur (a region in
Good Incentive / Bad Incentive
| June 14, 2008 | |
| Jenia Cherkassky | 2 Comments |
In the concept of NooTag we often mention the use of economic incentives. We believe that incentives are the most effective measure for getting users to maximize public welfare, or in more simple words to make sure that users would act in a way that would leave just about everyone better off, rather than acting in a selfish way or even, god forbid, in a destructive way. Here’s a good example from something that is very dear to me – Poker. A lot of people like to play Texas Hold’em with their friends, not for the sake of the profit but just as a way to socialize and have some fun (by the way, for some reason Texas Hold’em has gained huge popularity in Israel in the past few years). Now here’s a question – have you ever tried to play poker without money? I mean with chips, but without any money at stake. If the answer is “no”, than allow me to describe what would happen. During the first 2-3 hands, 40-50% of the players would say “all in” and the game would end in about 10 minutes. The reason is evident. If there’s no money then there’s nothing to risk or gain, and when nothing is at stake there’s nothing to motivate the players to keep playing and to try actually winning. The common good in this case is making the game interesting and making it last longer, the incentive of money serves this very objective. So as you can see, there’s actually more to it than gambling.
My partner, Alex, often likes to mention the poor quality of information on the Internet. And in this case also, just like in the game of Poker, a major reason for the poor quality of information is a lack of incentives. But here’s a surprise! – the Internet actually does offer incentives. You may have hared one of these incentives referred to as “Google Adsense”…. Oh, actually it’s not a surprise at all. So OK – there are incentives, however they do not seem to achieve the goal of maximizing public welfare. And in fact, they increase the level of inequality among various Internet users. I promise to get back to that point later on, but right now I’d like to ponder on a possible explanation for why the incentives on the Internet do not seem to be beneficial to most Internet users.
First, let’s examine an imaginary scenario in which the incentives that currently exist on the Internet for producing a high quality of information would actually be effective. In order for this to happen, there must be a certain mechanism that would make sure that only “high quality” web pages would get to the top of the SERPs (Search Engine Result Pages). Than, those pages would include ads and the mechanism that I’ve mentioned would make sure that information providers would be motivated to create the highest quality webpages in order to get to the top of the SERPs and benefit from the ad revenues. If you believe that this imaginary scenario actually works on the Internet than you either don’t know the Internet well enough or you are delusional. The reasons for this entire scenario not working well on the Internet are many. For now, let’s focus on one of the most important one – The lack of an effective mechanism to make sure that only high quality webpages would get to the top of the SERPs. The mechanism that is now in place to take care of this objective is the search engines’ spiders and ranking mechanism. And the problem of these mechanism is the fact they are way too vulnerable to manipulation by users (information providers).
One of these manipulations, which in my opinion can be considered as a market failure in the current model of the Internet information market is SEO or Search Engine Optimization techniques. I will not dwell upon the explanation of what these techniques are. As if you are not familiar with them, you can look up “SEO” on Wikipedia. However, I should mention that there are 2 major directions in SEO – these are often referred to as “White Hat SEO” and “Black Hat SEO”. Both of these directions focus on making SE spiders and ranking algorithms think that a certain webpage is actually more relevant and important than it probably actually is. White Hat SEO is considered to be a very legitimate practice, although in my opinion it is a market failure. However it is one that has became almost a necessity in the current model of the market. Because if the quality of a webpage is high enough, why the hell would someone need to use various “techniques” to make it look “better” in the eyes of the SEs?! So maybe the real market failure here is just the way that SEs evaluate information… Now if White Hat SEO is a minor market failure, Black Hat SEO is a very major one. This practice engage in dubious techniques that are no less than deceit and fraudulence of Search Engines as well as Internet users. The application of these techniques results in poor quality webpages, often with a malicious hidden agenda appearing on top of the SERPs. Of course it does not necessarily happen for all keywords, however it very often happen for highly competitive keywords, namely keywords for which appearing on top of the SERPs is most likely to produce really high revenues. And this is what creates what I’ve preciously referred to as “inequality”. Think about it – honest, hardworking folk can create really great webpages with relevant and high quality information and than be cheated out of the SERPs and the money by practitioners of unfair techniques.
As I’ve started talking about incentives, I’d like to get back to this point. In order for the public welfare of all Internet users to be maximized, incentives must be in place to make sure that users who produce information would create information of high quality so that users who consume information would benefit of this information. Such an incentive would definitely be a “good incentive”. However, right now there are too many incentives to produce poor quality of information, As a webpage with a poor quality of information can still reach the top of the search results and make money (usually by selling whatever there is to sell for the keyword or search term in question). In my humble opinion, one of the incentives to create those low quality commercial webpages is the field of affiliate marketing, well at least for some products. I promise to further explain this statement in my next article.
Philanthropy is a holdback of progress
| June 10, 2008 | |
| Alexander Ginzburg | 8 Comments |
I believe that philanthropy causes an inefficient distribution of resources, which means that everyone would be better off without it. Philanthropy addresses needs that are meant to be fulfilled by other economical agents, like the government and the market. However, in most cases it fails to deal with those needs properly. The reason is that the non profit sector is usually non competitive, therefore, it is less efficient than the private sector or too scattered thus less efficient than the government. This anomaly could be overlooked if it was affecting just the ongoing economic activity, but the fact is that it suppresses the progress. In order to demonstrate those effects, I will show a couple of examples both of the government and for the market functions.
Let’s start with the government. One of its main functions, in a democratic society, is to deal with poverty. This is simply in order to maintain an order, because failing to do so in a sufficient degree, will bring to a violent uprising of the poorest that will eventually overthrow the government. The process will keep going as long as the extent of the unbearable poverty is large enough to make a difference. Let’s imagine a country with high poverty and unemployment rates, which is on the verge of rebellion. If the situation of the low class doesn’t improve soon, the government won’t be able to keep ruling. It has two alternatives for an action: the first one is simply to increase the transfer payments to the needed (welfare), the second one is to improve the financial status of the lower class through employment by engaging a nationwide plan that will encourage the unemployed to join the workforce (subsidizes to employers, negative taxes, training programs). Let’s assume that each one of those actions would cost the government 200, however, the second one would also produce a benefit of 100 (due to the rise in productivity). Now, let’s consider a rational government (maybe it sounds a bit fictional, but I bet that they exist somewhere), it would probably prefer the second alternative for the obvious reasons. However, if there were a philanthropic sector involved, which wanted to assist the poor, the situation would be different. As opposed to the government, the non profit organizations have only the first alternative – to donate money, food and clothing. The reason is that they have no authority to take most of the actions that can be taken by the government. Besides that, the charity funds are scattered between many uncoordinated organizations, which makes it almost impossible to launch a large scale operation, like an employment encouragement plan. From that point and on, the situation of the poor gets better thanks to charity and the pressure on the governments is relieved. Now, they don’t need to take any action on this matter any more and the public ends up with the less favorable solution.
The same result can occur on an international scale. A good example to this can be found in an article authored by Walter Williams (‘Helping’ Africa to death). The author compares between two African countries, Zimbabwe and Botswana. On the one hand those countries suffer from similar negative conditions, high rates of AIDS infections and droughts, on the other, Botswana enjoys from a relative economic prosperity while Zimbabwe’s economy is a total failure. According the author, the cause to such a difference between those countries is their governments. Botswana is the least corrupt country in Africa, with strong law system that protects the private property rights, which are essential for attracting foreign investments. On the other hand, Zimbabwe, as many other countries in the region, suffers form chaos and corruption. Nevertheless, people don’t rise up against the corruptive leaders. The author claims that one of the reasons is the foreign aid, received from the developed countries. Whatever is left of it and haven’t been stolen is used by the leaders to maintain the situation of their subjects tolerable just enough to prevent them from rebelling.
I will continue discussing the downsides of philanthropy in the upcoming posts, and eventually I will project it on the Internet.
Not Just Money
| June 10, 2008 | |
| Alexander Ginzburg | Leave a Comment |
For awhile now, I’ve been talking about the causes of the low quality of Information on the Internet. The first issue that I’ve brought up was that the content producers are not getting enough compensation for their effort. Nevertheless, from time to time, we still encounter relatively decent content, which means that my argument is not yet complete. To make it whole, I will deal with an incentive, other than monetary, that is a source of most information available today online and at the same time is a holdback to its progress. The incentive I will be talking about is philanthropy. Before exploring its effect on the Internet, I will refer to it in a general manner first.
New header + Logo
| May 9, 2008 | |
| Jenia Cherkassky | Leave a Comment |
Today our blog got a brand new header, which corresponds to the design of the upcoming NooTag website.
The header also unveils the NooTag logo, which was created by our designer and will be used for our website as well as for our blog.
The ‘W’ will get Wikipedia to beat Knol
| May 6, 2008 | |
| Alexander Ginzburg | 6 Comments |
Google has recently launched a rather ambitious project, a free encyclopedia service by the name Knol. The most challenging aspect of this initiative is the confrontation with Wikipedia rather than the implementation of the service itself. Why would Google want to make such a move? The first reason is that Wikipedia is off the limit for Google’s AdSense program, which is responsible for about 35% of its entire revenue. So, the only way to reach the encyclopedia traffic is to attract it to a more Google-friendly environment. Apparently, Wikipedia’s 7 billion page views per month are worth fighting for. Another and more significant reason, in my opinion, is Google’s dependence on Wikipedia. About 5% of Google’s search traffic end up in Wikipedia, this kind of dependence on one content producer makes Google vulnerable. If any present or future competitor manages to obtain exclusivity over Wikipedia, Google’s leading position would be at risk. The way to treat this kind of threat is by finding or creating an alternative source of content. In this article, I’ll try to analyze Google’s chances of achieving those goals with Knol.
In for Knol to be successful, Google needs to attract users to the new service. To do so, it must present some advantages over Wikipedia, both for the readers and especially for the writers. For that reason, two new features were introduced in Knol: highlighting the authors and sharing revenue. The first one is meant for the readers. Its purpose is to increase the credibility of the articles by revealing the identity of the authors. Though I do appreciate the importance of this feature, I believe that it’s not relevant at the moment, simply because the content which integrity is meant to be assured is yet to exist. Therefore I will be concentrating on the second feature. Its purpose is to encourage writers to post articles by providing them a financial incentive. Google will reward the authors by sharing with them the advertising revenue from ads, placed along with the articles. Knol’s chances for a success depend vastly on the effectiveness of this measure. In order to explore how good those chances are, I will turn to an academic field, which combines aspects of psychology and economics – behavioral economics. Particularly I’ll use a theory that explains the relationship between the incentives that one receives to the level of effort he makes. This theory called – the ‘W’ effect of incentives.
The highlight of this theory is that people invest a lower degree of effort when receiving small incentives than they do when they are getting no incentive at all. Another insight of the ‘W’ effect theory is that strong incentives encourage the highest level of effort of all. The same rules also apply for the negative incentives (punishments), as a result the incentive–effort graph looks like a ‘W’ which is the source of the theory’s name. I’ll try to make this phenomenon sense with an example. Let’s say that a certain government is interested in promoting recycling of drinking bottles among its citizens. For that reason, they set a small deposit that is included in the price of the beverage and could be collected back after returning the empty bottle. Seemingly, this kind of incentive should increase the willingness of all citizens to recycle; however, in reality it may have an opposite effect on some parts of the population. Let’s take some middle class family for example. Before the existence of the deposit they were used to return their empty bottles to the collection point, but since it became financially rewarded they stopped. The simple explanation to this inverse result is that the members of this family were making an effort to recycle for free because they knew that their action was seen by others as environmental awareness; on the other hand, they are not willing to make the same effort for a small reward because they don’t want to be seen by others as if they are doing it for the money and consequently to be considered cheap. Nevertheless, for others, like homeless people and low income families, even the small deposit amount may be significant and make them start recycling even though they do not care for the environment. Therefore, financial incentives can make people increase their effort as long as they are strong enough; otherwise it may be better off without them at all. Now, let’s try to apply this theory to our case.
Since people have no financial benefits from sharing their knowledge on Wikipedia, they probably have other reasons, like philanthropy for instance. On the other hand, Knol will present some monetary compensation for the effort invested by writers, which will suppress the voluntary nature of sharing knowledge for free. By applying the ‘W’ effect theory, we should be able to determine whose approach is more effective. The key variable in this puzzle is the strength of the incentive that will be offered by Knol. In case of an insignificant reward, most people won’t be interested in publishing articles, simply because it won’t be worth the trouble to do it for money and as opposed to Wikipedia, it won’t be seen as a noble contribution to the humankind. However, if the amount is large enough it may motivate some knowledgeable people to share information as their secondary or even main occupation. That is definitely a result that will be a triumph for Knol. In this scenario the information market will become competitive and it will attract the best experts, so that the quality of the information will rise accordingly. Meanwhile, Wikipedia will stay behind relying on people who wish to contribute knowledge or just do it for fun but not necessary on the best ones. So the question now is whether Knol’s incentives are expected to be strong enough.
By judging Goole’s history with the AdSense program I may confidently assume that the rewards are going to be minor, at least for writers of the less popular topics. I have referred to this issue in the past, and my argument was that the content producers are not sufficiently rewarded because the search engines don’t pay them royalties in spite of using their content to make a profit from advertisements. Since placement of ads just aside the content will never be enough to properly reward most of the authors, I suspect that Knol’s writers will meet the same fate. Therefore, according to the ‘W’ Effect, most experts that were willing to devote some of their time in the past to share their knowledge in Wikipedia, won’t do it on Knol. Simply because in case of Wikipedia they are seeing it as the good deed of the day, or just as fun, but with Knol it will be neither. The writers will have to deal with self perception and with being seen by the surroundings as someone who is wasting his valuable time for a few bucks. Moreover, even the fun factor in Knol is expected to be weaker than in Wikipedia. Psychological researches have shown that people enjoy more when performing a task for free than from the same task done for a reward. The psychological explanation is that people generate the filling of enjoyment in order to relive the cognitive dissonance of doing something for free. Or in other words, people convince themselves that they’re enjoying some activity as an excuse for doing it for free. But if they do get paid, it’s a sufficient excuse for doing something and they don’t have to keep enjoying it anymore.
Though Wikipedia has a fore over Knol, it can still be bypassed. Google can use its power as the leading traffic supplier on the Internet and to promote Knol by placing its articles in front of others in the search results. However, the most effective and rightful way would be to provide the writers with suitable incentives.
NooTag Development update
| May 5, 2008 | |
| Jenia Cherkassky | Leave a Comment |
My partner Alex has been posting many interesting posts that express our ideas and point the finger at the problems that we see with the web today. If you’ve been reading the previous posts on this blog, then you should know that in our opinion there are many many problems with the distribution of advertisement revenues on the Internet and this problems eventually lead to poor content and poor search results in the industry leading SEs (namely Google). Not that we think that Google is evil and by all means – we DO NOT try to lead some kind of an anti-Google campaign. However, we do not going to just write about the problems with Google and the internet in general.
About a year ago we have began forming some of our ideas in the fields of economics, information management, content production, distribution and discovery, advertisement and so on into a service.
This service (that will naturally be called “NooTag”) is now in early development stages. Right now it is still in super duper highly secret and very confidential stealth mode, so I am not to reveal what it is going to be and how it going to work – but I hereby promise that if successful, NooTag shall revolutionize the very essence of Internet content production and distribution!
As for the time line – we really hope to launch a limited scope alpha by the end of 2008 and if you want to be included, please email us.
Right now, NooTag is privately funded and we are not currently looking for more funding. However, we might need some additional funds towards the launch of our alpha, so if you wish to invest in the future and are looking to get more details about what we are doing, feel free to contact us.
From time to time, I will try to post development updates and maybe even some more details about NooTag.
By the way, we also have a beautiful new logo – I will post it here later this month.
The economical path towards the future search engine
| December 20, 2007 | |
| Jenia Cherkassky | Leave a Comment |
One of Alex’s articles was published on Alt Search Engines today. The article talks about how we see the future of the Search Engine market and illustrates why progress has to be made in a way that differs from the current one.
We are not publishing it here because it’s exclusive for Alt Search Engines but it is very good reading and I recommend you to dedicate a few minutes to reading it.
-Jenia.
Why websites don’t get their money?
| October 24, 2007 | |
| Alexander Ginzburg | 2 Comments |
First of all I’d like to put in order the sequence of the discussion in this blog. Earlier, I’ve claimed that the quality of the information on the Internet is too low due to the failure of the search engines to perform their role as mediators in the information market. At this point I’m focusing on the failure to transfer payments from the information consumers to the producers. In the last few posts, I’ve managed to show that those payments are being collected by the search engines via advertisements. However, for some reason these funds haven’t been reaching their destination. I wonder – why is it so?
The answer to this is obvious – search engines keep the money in their own pockets. Even though it is not theirs to keep, they are not to be blamed, since they do it under the protection of the law. Seeing that I have no legal expertise, I’ll try to examine this phenomenon from an economic point of view. For this purpose I’ll use an analogical situation occurring out side the Internet.
Let’s compare between the functionality of a search engine and a radio station. The role of a radio station as a mediator is to provide the listeners (consumers) with the most suitable songs (content). At the same time, they receive an income from advertisements and use it to reward the singers (producers) by paying them royalties. Similarly, the search engines provide the internet users (consumers) with the most suitable web pages they can find (content). However, even though the search engines receive income from advertisements as well, they don’t reward the websites (producers) which supply the actual content to the users. There is no doubt that Google deserves to enjoy a slice of the income cake for the search service it provides (just like a radio station). However the fact is that Google gulps the whole cake. That is the main reason for its phenomenal financial prosperity. However, that is also the cause of the reality in which the best content producers don’t share their content for free.
Advertising on the Internet
| October 24, 2007 | |
| Alexander Ginzburg | Leave a Comment |
My last few posts were dedicated to a discussion about advertising as a mean of payment for information. Now I’m ready to go back on track to the main subject of this blog, the information on the Internet. The economic mechanism behind the information market in the virtual world is basically the same as in the real one. Therefore, advertisements are used on the web as a method of payment as well. Moreover, it’s almost the soul method available on the web. People consume the information through the mediators (like search engines, portals, and social networks) and pay for it by exposing themselves to advertisements. The income from advertisers is meant to be used as a reward to the information producers for their effort. However, as opposed to the real world, most producers on the internet don’t get their money.
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