Keep your friends close

How much value do your friends bring to you? Silly as this question may be, its one being asked in offices and boardrooms across the country. Companies are trying to understand how much a “fan”, a “follower”, or a “like” is worth.  The most common response is, “I don’t know, but more is better.” However, in this case more isn’t always better.

Social media sites leverage something called EdgeRank to determine what content is shown to people when they log in. On Facebook, it’s believed that only less than 2% of eligible content has the potential to show up in the news feed.  So, the question shouldn’t be how do I get more fans, the question should be how do I get my posts to show up more than 2% of the time. The simple answer is engagement.

When people interact with your content it’s more likely to show up again in the future in their feed and the feed of those that are “close” to them. When companies attempt to gain just any followers via contests and other means, adding them could in fact be decreasing the total value of all their fans.

So how much value do your friends bring to you? Within social media, just like the real world, in some cases less may in fact be more.

Equations that predict the future are among us.

“How accurate does my model need to be?”

This is a question that I get asked all the time. The universal answer: It depends. Virtually any decision that a human makes can be modeled by the computer. IBM’s WATSON proved that playing Jeopardy. Was the WATSON always right? NO. Did IBM prove WATSON able to simulate human decision making? YES.

The question is how accurate did WATSON need to be in order to compete? It depends. It depends on the type of questions asked. It depends on the quality of opponents. It depends on the score and questions left in the game.

In the business world the same type of questions need to be asked. All too often I run into vendors promising models where they lack a full understanding of all the circumstance surrounding the question I need answered. They then pledge all sorts of fancy accuracy metrics that speak to questions they figure I would want answers to, but fail to answer the one question I’ve asked: How accurate do I need to be in order to make better decisions and what is the cost of increasing that accuracy?

I realize I may be biased. I help companies build internal analytics practices, often by decreasing long term costs. Teach a man to fish; it costs less than buying a fish for him every evening.

Flash Crash Aftermath

It’s been months since the flash crash that caused several major stocks to trade at values close to zero for a few minutes before returning to a more reasonable level. Since that time several mini flashes have occurred. And yet, no irrefutable proof exists to blame any one type of trader. Most importantly virtually no policy changes been enacted to prevent a repeat occurrence.

I contend no one type of trader is to blame, but rather all traders are to blame. When a $40+ stock is suddenly trading for less than a dollar, how does no one step up and offer 35? It’s equivalent to a company that sells 1 IPOD online every min to the highest bidder. If suddenly they started selling for $1, someone would step in and offer a “reasonable” price.

So the question is; why doesn’t this happen.

1) Black box trading programs which typically help make the market are deigned to shut down when massive swings occur to give a human the chance to override the program. Trading itself shuts down when this takes place, except that there are now secondary markets that don’t abide by these same rules.

2) Typical investors have stop losses in place. If they stock drops below a certain level they give the order to sell at any price. Usually this is the price they set but if there are no buyers in the market then they could sell for far less than intended.

3) The traditional market makers have vacated their usual roles. Black box programs have replaced them and reduced the overall cost of trading. The bid/ask spread is far smaller today than it was 10 years ago. They’ve left because they can’t make money.

Stopping these crashes from taking place doesn’t require placing blame on one of the 3 groups above. They are all to blame but each is doing what make rationale sense to them. What needs to take place is that when a listing exchange flips the breakers and halts trading all the secondary exchanges need to halt trading for at least the same amount of time, if not longer. What is needed is a chance for cooler, more logical heads to prevail.