The brilliant thing that DiVanna does in Redefining Financial Services, is to put the problem into context, specifically a historical context. I had never considered why banks existed in the first place – this somewhat obvious question, despite having a history degree and having studied the medieval period when banking was born, had never dawned on me. If you asked me before I read this book why banks exist today I probably would have said ‘so people have a safe place to store money (ie. surplus)’, and while on the surface that is true, there is much more to the historical context than that.

For example I had never considered the obvious implication that someone living in 1250 AD did not at one point say ‘hey, we should have a bank so we can put our extra money in it’ – but if you stop and think about it – of course that could never be true. You cannot conceive of an invention without first having a need (or what do they say? Oh yes, that necessity is the mother of all invention.) So where did that impetus come from? People were beginning to embark on increasingly risky and lucrative international trade, and were finding that disparate geographic transactions were fraught with known and unknown risks, some of which included identity risk, currency risk, credit risk, and goods risk – ie., here I am with these spices in present day Turkey, how do I get them on a boat, get them over to Italy, find a buyer, collect on the goods (in a different currency mind you), and then get my surplus back home again? When you think of embarking on a transaction like that in the absence of a bank, it boggles the mind that international trade ever existed at all. In any case, some brilliant entrepreneur saw that there was an opportunity to provide guarantees on transactions in different forms, and thus value was offered in the form of contracts that could underwrite this precarious trade.

Fast forward to the modern day – and we see that banks are now in the position where some of that value has been eroded through the invention and commoditization of technologies that can deliver that same value much more easily (ie. cheaply), and we find that we live in a world of online only banks pushing margins on much more established, traditional banks.

What DiVanna then posits is that there are still means for banks to differentiate in the face of this competition to deliver more value to customers. One such example is through innovative pricing and specialized bundling of banking products. DiVanna notes that:

“…small businesses – especially one- or two-person shops or home-based freelancers – are not always well suited to a bank’s product and service offerings, which are laden with fees designed for larger retail and corporate clients.”
~ Joseph DiVanna, Redefining Financial Services, page 94.

Redefining Financial Services: The New Renaissance in Value Propositions

This sentence succinctly puts forth the value that Zafin Labs delivers to its client banks – our software solutions work within complex banking systems to pull out meaningful data that can be acted upon, and then to allow banks to innovate by making it easier for example to create new products within a banking production environment. To think of it another way, banking systems have generally been designed with security, and not necessarily agility, in mind. Our innovation is, like the earliest bankers, to see an opportunity (innovation agility) within a difficult problem (complex, layered banking systems). Based on the quote above, there is no reason banks should not be able to offer the right bundles of products to the right customers.

“The wireless music box has no imaginable commercial value. Who would pay for a message sent to nobody in particular?”
~ David Sarnoff’s associates in response to his urgings for investment in radio, 1920s

Maybe this title could be less provocative, but it answers to what I want to write about, which is how I have come to understand the purpose and usefulness of twitter. The quote I opened with really could have been any quote about a new technology or cultural artifact. We as humans have shown an incredible propensity to downplay just how much any given technology will affect our lives. For some reason this quote about the radio really resonated, given that twitter often seems to be about broadcasting a message to no one in particular.

Probably just as often, we believe the change to be more significant in the short term and we underestimate the long term change that the new technology represents. I don’t have a quote for that, but if you can think back to when the dot com bubble burst, you’ll get my drift. Anything internet related could return hundreds of percent in a single day, sometimes based only on an idea. Of course, if you think about how the world has changed in the past 10 years, it’s obvious to anyone that the internet really has revolutionized the way we communicate, work, interact, shop, buy things, etc. It’s not that the tech bubble craze was totally incorrect, it’s just that the value of the changes investors et al. were anticipating were 10 or more years off. We need time to absorb change. Change causes more change. It probably goes without saying that these changes that occur are non-linear and completely unfathomable 10 years prior. But all of this is relevant to twitter.

Number of tweets by % of users

In any case, there are about 105 million twitter users. Depending on what measures you use to consider a twitter user active, there are probably 20 million or so active users (I’m going with the reports that 80% of users have tweeted 10 times or less. I’m calling them inactive – they may be listening but they are not sharing.) This is still amazing. If twitter were a city, it would be one of the largest, most well connected cities in the world. Much as cities grow, with each new active user twitter becomes more valuable to every other user.

2. Twitter = 1/3(Digg + StumbleUpon + Google Reader) + search + Facebook + social commentary. My equation of course depends on why and how you’re using twitter. For me it’s about navigating the web, sharing cool things, and finding cool things from like-minded people within my network. The thing I originally loved about StumbleUpon was that it would help me find things I liked that I didn’t know existed and literally could not have searched for. Twitter does that plus it comes from someone you know generally or have chosen to follow. It diggs things by retweeting them, so you have a good idea of how popular something is. Google Reader is my source for everything I follow closely, but there are not enough other people I know who use it to make it useful for me – ie, I don’t have a large enough network of Google Reader friends to find stuff I didn’t know about as well as I do through twitter.

3. The strength of weak ties. That’s the title from a 1973 paper by Mark Grannovetter that I read about in Albert-László Barabási’s How we are Linked. The great thing about twitter is that it is really a whole bunch of weak ties. What I mean by this is that even among friends in the offline world there are often not a lot of overlapping connections. The reason this is important is as follows: let’s say you and your friend are both looking for a job. Between you, you share a tightly-knit social network of friends and acquaintances. If any opportunities come up, you are both privy to them through the same sources. So first of all, that means you will compete for the same resources (in this case jobs) and you will not be able to find any opportunities through only one of you (I’ve written about this earlier on this blog).

However, if you took the same situation – you and a close friend – but instead assume that you each have a completely separate group of friends, then you have likely just doubled the amount of opportunities available to one or both of you. These weak ties are often how we find jobs. And it is this nature of twitter that makes it a great place to learn about opportunities.

For example – I took two friends (@loxyisme and @jagtianinikhil) from the offline world who are active on twitter and here is what followerwonk.com shows through its trusty venn diagram:

This is who we follow on twitter - notice no common users between all three of us.

Again, nothing in common for all three of us.

I’m actually quite surprised that we share no common connections on either side of twitter (despite the fact that Loxy and Nikhil have never to my knowledge met). It’s also phenomenal that we share so few common connections between myself and either of Loxy or Nikhil: Loxy and I share a fair number of offline friends; Nikhil and I both have MBAs from UBC (albeit a year apart). I don’t know the value of weak ties in dollars, but I would venture to say that finding a job through twitter is going to be a common trend in the future.

4. What would have to be true for twitter to become a dominant form of communication? Allow others access to your API. Check. Make it run on nearly anything (computer, smartphone etc.). Check. Get an overwhelming number of users relative to similar communication options. Not yet, as I’m sure there are more people with email and cell phones than there are twitter users, but the growth rate is looking good (and accelerating if the latest figures are to be believed). Make it easy for companies to develop products that support the use of your program or product. Check. I don’t know the total number but my mind is constantly blown about every new twitter app I hear about. Make it easy to find information. Check. 600 million searches per day. Make it reliable. Not quite there yet, but there are fewer sightings of the fail whale everyday. Make it easy. Check. Make it a small change to adopt. Maybe half marks there. I feel as if I am only getting to understand twitter and its power and I’m 1.5 years and 260 tweets in.

5. Twitter teaches brevity. As a writer, I know how difficult it is to get to the heart of the matter (see: the length of this post). Any character limit would have done, but 140 is where we are with twitter, and it seems to have hit the sweet spot. It’s just long enough to get across an idea without anything extraneous. In a world overflowing with information, the ability to cut through the noise is extremely valuable.

Twitter is here to stay. Much like earlier technologies or applications, we have overstated the importance of it over the short term (it’s this fad with 100 million users that will pass) and not considered the longer term (that people are forming smaller social networks they will use to communicate and share information and that that is here to stay). Twitter is an integral part of social media – it might change, it might mutate, but the essence of it is here to stay.

Update:

Focus on Everything (subtext: another reason to use twitter)

As I plow through my Google Reader treasure trove of awesomeness, I’ve found a few related writings, at least in reference to Grannovetter’s the Strength of Weak Ties that I really must share with you. These reads of course linked to each other, but they are each worth reading on their own. First is the difference between having a purpose and having a vision, written by one of my many idols, Diego Rodriguez at IDEO. The second is by Joi Ito, who I’m sure will become one of my idols, based on the brilliance of his writing and the clarity of his thought.

Full disclosure: I keep an ‘I’m reading’ list on my profile on LinkedIn and will be using the reviews there as the basis for my reviews here. If I could just import them here, I would, but there doesn’t seem to be an easy way to embed them right now. Also, by doing it this way it forces me to think about what has changed since I wrote that review, and the update will hopefully make the review more accurate.

The Ten Faces of Innovation: IDEO’s Strategies for Defeating the Devil’s Advocate and Driving Creativity Throughout Your Organization
by Thomas Kelley, Jonathan Littman

I’m only through the first two parts of ten, but I can say already that if you’re interested in making a design-focused organization, or even just improving your marketing through empathy and understanding your customer, you’re going to want to have this book on hand. Update: I’ve kind of stalled on this one, though it isn’t because I don’t like it – I just got caught up in a few other books at the same time. While this book is not exactly how-to, it has a lot of great ideas and case studies to make things happen and provide inspiration.

13 Things that Don’t Make Sense: The Most Baffling Scientific Mysteries of Our Time
by Michael Brooks

This book is blowing my mind. There are so many interesting scientific anomalies that currently exist – from death as an aberration to the problem (or not) with dark matter – this book is definitely for the scientifically curious. Update: (I wrote the previous part a few weeks ago) I actually just finished this book last night. The last few chapters were not as good as the first few, but it’s hard to say if that was due to the mysteries being less interesting or me getting a bit tired of them. Maybe 11 things that don’t make sense would have been better.

Visual Explanations: Images and Quantities, Evidence and Narrative
by Edward R. Tufte

So far this is simply an amazing book about the role of design in great communication. When you read the part about the Challenger Disaster you will learn about statistics, understanding data, and communicating risks properly. Edward Tufte is a true gem. Update: we both hate PowerPoint. That is all.

Founders at Work: Stories of Startups’ Early Days
by Jessica Livingston

This book is great for anyone interested in entrepreneurship in general or specifically tech start-ups. It is really making me want to get something rolling on my own, which is both distracting and very exciting. I highly recommend this book. Update: I still highly recommend this book. I haven’t picked it up in the six months since I read it, but I do still plan on using one of the interviews as a basis for a one hour lesson in my entrepreneurship class at BrainBoost.

Teach Like Your Hair’s on Fire: The Methods and Madness Inside Room 56
by Rafe Esquith

I’m about to be teaching a course again and this book is giving me a nice grounding in the non-technical aspects of teaching that I want to accomplish, or re-accomplish, as it were. Very entertaining and enlightening. Update: I am teaching that class now, as above, and this book was inspiring, but perhaps it’s more for someone who hasn’t done a lot of teaching. Then it will really get you excited to teach.

Nudge: Improving Decisions About Health, Wealth, and Happiness
by Richard H. Thaler, Cass R. Sunstein

I’m reading this book because I’m a bit of a junkie when it comes to books about the brain, how it works, and how we can improve outcomes for people in general. If we can improve the lives of others by changing design, why shouldn’t we? Let the default be a great option. Update: Started reading this again recently. It’s still pretty awesome, and definitely a great place to start if you’re fairly new to the subject.

Built to Last: Successful Habits of Visionary Companies
by Jim Collins, Jerry I. Porras

A great book if you ever need to create a BHAG for a company you know little about and then give a presentation to its CEO less than 48 hours later. The Sauder MBA Capstone program – good times! Update: I haven’t looked at this one for quite a while now. It’s not for everyone, but it is particularly useful if you own/run/work for a small business and you want to set a course for the future.

The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits
by C.K. Prahalad

A great book that features tonnes of actual pragmatic advice and lessons learned from companies opening up the bottom of the pyramid. Perfect for anyone interested in making the world a better place through business. Update: This book makes you want to move away and go help the less fortunate all over the world. That feeling passes – however, that is probably a good thing, as there is always a lot of good you can do in your own backyard – like volunteer in Vancouver.

Duct Tape Marketing: The World’s Most Practical Small Business Marketing Guide
by John Jantsch

Another book I’m only part way through, but this one has had some real gems in it. For example, mapping your customers out to see any interesting relationships between them. What if half your customers all came from the same neighbourhood? What does that tell you? Maybe you have an evangelist there, or maybe seeding a new neighbourhood with customers would be a good idea as perhaps it’s just friends talking to friends? You never know what you will learn from this exercise – and this is just one among many. Update: See, this is why I force myself to do this – why haven’t I picked this one up in a few weeks? I need to finish this one right away.

The Back of the Napkin: Solving Problems and Selling Ideas with Pictures
by Dan Roam

Clearly I’m reading way too many books at the moment, but this is also a keeper. It helps show my current theme/interest, which is learning to communicate more effectively and efficiently through a number of different mediums. A lot of what I have found in here is fairly intuitive, however, like many things in life, forcing yourself to sit down with the intuitive can sometimes be quite enlightening. Update: I’m guilty here – I’m totally skimming the exercises and that is making the whole experience a lot less useful. I will update this one again in the next set of reviews assuming I go back and do these drawing exercises. Mea culpa.

One of my favorite Tufte posters – click for full-size:

The Cognitive Style of PowerPoint

A pricing manager for one of the major oil companies came to speak to my class recently. One of the more interesting tidbits from the lecture was the way in which he dispelled the myth that collusion occurs among gas stations. To be sure, collusion is possible in pretty much any industry. But because of human behaviour – in this case, the price-elasticity of demand – the benefits of not colluding generally outweigh the benefits of collusion. It turns out that among consumers of gasoline identified as brand- or station-loyal (meaning they will almost always patronize a certain oil company or gas station), two-thirds would roll over on their favourite to save 0.5 cents per litre of gasoline. The effects of this are manifold: first, it means that we would expect long line-ups at a lower priced gas station when higher priced alternatives are nearby (which we do generally observe); second, and this is the part that I find quite fascinating, it means that we are willing to wait sometimes 20 minutes in order to save 25 cents on a 50 litre fill-up.

How is it that anyone can value their time at 75 cents per hour? Would you ever hire yourself out for any reason for 75 cents per hour? I should hope not. But I’m probably exaggerating slightly. So let’s say that, instead of 0.5 cents per liter, we’ll really save 2 cents per litre, and we’ll halve the waiting time. Now you’re choosing to wait ten minutes so you can keep a whole dollar in your pocket. If you own a vehicle, a dollar a week probably isn’t that much to you. Think about it for a minute. Which would you choose? $52 a year or nearly 9 hours of free time (assuming the 10 minute wait)? Of course, you’ll say those ten minutes you save cannot be condensed into one free day from work, and you would of course be right. But those ten minutes…what would you do with those? Maybe you would spend time with your spouse, maybe your kids, hell maybe you’d just take your shoes off and sit on your own front porch or balcony. But – and this is an important but – how often do you ever make a calculation like that? If you’re honest, the answer is probably almost never. Because we’re not trained to think like an economist, we don’t think like one. Instead, we strive to save money where we can, often in exchange for ridiculous amounts of time. And I am no different (to be fair, I’m not an economist either).

But it is because of this innate price sensitivity we all suffer from that it is nigh impossible for gas stations to collude on pricing. Even if a deal were struck between two gas stations, the gains to be made by abandoning collusion for one station are quite significant when you factor in the extra volume of gas you can sell by undercutting your competitor by half a penny (we expect far greater than 66% of drivers to switch to the lower priced alternative at that point). One of the pricing manager’s main job functions was to be ‘on call’ until 11 pm every evening simply to coordinate prices for all of his stations around the city and its environs to avoid any price discrepancies among them. Of course this isn’t the whole story – there are many other reasons collusion is impossible, chief among them the threat of government intervention (three studies in Canada in the last ten or so years all found no collusion). The manager we spoke with isn’t even allowed to so much as golf with anyone from a competing oil company.

Perhaps our price sensitivity is fueled by our outrage that gas prices should be so high. In the end, it doesn’t really matter. The supply and value chains of pulling a barrel of crude out of the ground and turning it into gasoline are very complex. I could go into more detail, but suffice it to say that there is pretty intense competition at each transaction level. The bottom line for retailers is that margins are low on their end product, which is why they charge exorbitant prices for bottled water and salty snacks at gas stations – it is all about getting us in the door, and it is quite obvious that we will go wherever the signs tell us that prices are lowest, even if it means a more expensive cola.

The point of all this? Well, when you’re thinking about saving money, think about how you’re spending your time (a very finite resource). Make sure it is making you happy. Imagine what you could do instead of driving across town to save $10 on an ipod, and then ask yourself, which would I rather have: $10 or an hour with my honey?