Episode 84: Clever Business Models and Giving

Transcript

i've always really liked hearing about clever business models ones uh preferably where
all sides win kind of thing it's so it's so easy to think about a lot of business models
as sort of a zero-sum game and i know this isn't explicitly true but you know if you take the the
most simple sort of one person gives up time to do a thing for another person the other person pays
them it's kind of a zero-sum game right like they're the the money just exchanges hands so so
if person b pays the person a fifty dollars to do a thing um sure the service has been accomplished
but but you still only have fifty dollars like it just did it change from one person to the other
so nobody got extra in some way right obviously there you know again i'm i'm oversimplifying here
it's not really a zero-sum game because that you've got of course the service was accomplished
and that presumably brings some value but it didn't multiply at least the dollars in any in any case
but i that's a simple model right like one person does something for someone else and they get paid
for it and that's a very simple business model and it makes a lot of sense but i like i've always
liked hearing about things that are a little more um clever when i was in grad school i did a project
on recaptcha which i thought was fascinating and i know that you know you got to rewind a little bit
at the time uh captures captures weren't quite as widely hated as they are today this was sort of in
the days of you know most sites captures really kind of sucked and were so hard to figure out
uh recaptcha was one of the early services that would provide captures for you to put on your site
for free it was kind of a positive thing at the time but anyway so it came out of carnegie melon
as i recall um and what was clever about it so so recaptcha provided a little javascript
snippet that you could put on your website and along with some documentation so that you could
implement captures to help reduce spam on your website and it did this for free to the website
owner and that was one of the things that set it aside there were some other spam and phishing
you know prevention services but you had to pay for them so as a website owner be able to do it for
free and it was a pretty good one too you know it worked well it looked reasonably nice i mean as
nice as a capture can had some accessibility options it was it was pretty good but of course recaptcha
somewhere has to get paid right otherwise they just go under you can't just provide unlimited you know
technical services like this and never make any money out of it other you know that will be fraught
with problems it's not like it was just an open source project that had volunteers working on it
or something so the way this worked was and if you think about a capture right it's those little
things where it's got really blurry text i mean back in back then it was pretty much just text now
there's images and all kinds of other stuff but but at the time it was text blurry text difficult
to read such the idea being that a human would be able to see this but a you know a bot or a
you know a spam thing or whatever wouldn't be able to as easily so what recaptcha did that was clever
was they went to libraries and libraries were at the time ocr-ing their books right uh optical
character recognition i think i think that stands for the idea being that it's digitizing books right so
it's a system a machine that will read through the book pages and transcribe that into digital
text now if you think about that process as a machine goes through a a page of a book it will
inevitably hit words phrases maybe messed up pages whatever that it it can't tell what it says with a
high degree of confidence so if you think about that at a scale like let's say you were transcribing
a novel or whatever let's say it was 500 pages what if every few pages there were at least was at least
one word on the page that it couldn't figure out for whatever reason just blurry or it was printed poorly
or there's a tear in the page or you know whatever so what recaptcha did the way those systems work
is when it hits those it it sort of puts them off into a i don't know i assume it's a folder or
something and says hey here's stuff we couldn't figure out so recaptcha went to these libraries
that were doing this and essentially said hey give us your folder of stuff that that that your ocrs can't
read and they then took those and displayed them as the captcha images and then they would display it
across hundreds and thousands of people right because they would be showing these captures
across all these websites so people were essentially helping to uh supplement the ocr machines
so that they and then recapture would give those texts once the confidence rate was high enough once
you know if you think about let's say 200 people get an exact get this particular failed word that a
capture the that an ocr couldn't figure out let's say 180 of those people all answer with the same
word you know it looks like cat but maybe every 180 people wrote cat and then a couple people wrote
like kit or something and they couldn't make it out but if 180 out of 200 said it was cat they'll ship
it back to the library and say this word was this this word was this and you look think about that
scale right across all these words essentially recapture at the time was helping to finish out ocr that you
know digitizing books and magazines and stuff that ocr couldn't figure out and then the libraries would
and this is the key the libraries would pay recapture probably by the word or something
in terms of you know helping complete out its process so the libraries are getting their
their books digitized they don't need to have people manually looking at all these things to make
sure that they're right which would be very costly they're probably paying you know pennies on the dollar
compared to what labor would need to do recapture gets to provide this service for free websites at the
time get less spam traffic everybody kind of wins right like the library is not paying as much as it
would recaptcha is still making money and they eventually got bought up i forget who they got
did they get bought up by google now i can't remember they did get bought eventually but they they they were
getting paid they could pay to make the service better over time and website owners were were winning
because again at the time captchas were a pretty good solution and i always thought that was really
clever i i just it stuck with me because those are the and i've heard other kind of similar things
along the way from you know other business models and stuff but i just i when i hear something like
that i love it i think it's just so so clever and interesting from what i understand the early days
of amazon and maybe they still do this stuff but i had heard this story about the early days of amazon
and how they managed to at the time sell everything so inexpensively
and the general idea went like this and i i've tried to validate this story
a couple of times since i heard this along quite a while ago maybe 10 15 years ago
and i validated like pieces of it like i hear different renditions on it but the story that i was told
went like this in the early days if you think about a general normal retail company let's say you go to
the whatever the mall or something and they have supply that comes in so they have to pay their
suppliers right so so they typically they're working on like a net 30 kind of thing so let's say that
you're a shoe store you get 100 pairs of shoes in then the supplier sends you a bill and says you have
30 days to pay us for these 100 shoes so then you sell you know some shoes or whatever and your
business is all about cash flow at that point right you need money coming in so you can pay your
suppliers on the other side and you have 30 days to to settle any given bill and what i had heard
about amazon again i i never a hundred percent validated this because it's just been hard to
chase down but that instead of doing like a net 30 that they cut deals with their suppliers that was
like net 45 and so the the the difference was they would get to hold on to the money that it was
coming in a little bit longer than your typical retailer and what they would do is they would have
that in accounts that accrued interest so essentially they were getting 15 extra days worth of interest on
any given uh you know purchase and then you look at that at scale and it accounts you know it results
in millions and millions and millions of dollars right and it's not to say that's the only way they
were making money like obviously they had so they had margins and whatever else but you know the
retailers at that time were flocking and i mean they still are but flocking to sell on amazon they were
willing to cut these deals because for them 15 days didn't mean much for amazon since they were
dealing with so many different uh suppliers that 15 and you know customers everything else that 15
days made all the difference in the world and they were able to multiply money just by accruing
interest on 15 extra days of hanging on to cash again interesting business model right so in the in
the spirit and what made me want to talk about this particularly right now is that sort of in the
interest of or in the spirit of uh you know the holidays and here in the states at least you know
thanksgiving and christmas and new year and you know often thought of as a time for giving and thinking
about maybe people less fortunate or however you want to frame it to yourself i i happened to be
listening to an episode of uh you are not so smart which i'll link to and on the show it's he has a
guest and the guest is a guy named uh joshua green and he's done all sorts of really interesting
research much of it around you know uh ethics and um morality and um where kind of philosophy and
psychology kind of intersect and just a bunch of interesting different things but um he so so the
way that he explained this he started a charitable organization and the idea goes like this many
people who give to charity have their couple favorite charities like that they like to give to
however the charities that you like to give to might not be the most effective so for instance
and i'm just going to make this up you give a hundred dollars to breast cancer research and that
money even even aside from the fact that maybe the one you're giving to has a bunch of administrative
stuff that like sucks up your a lot of your hundred dollars even if you don't count that and you assume
that the full hundred dollars is going to research a hundred dollars in the research world
means very little it doesn't take it doesn't go very far right compared to there are other charities
where for a hundred dollars you can pull like an entire small village out of poverty with very high
effectiveness rates and there's apparently a bunch of research around this so his charitable thing
does a couple of things first of all it recommends if you if you let's say you have a hundred dollars
and you want to give a hundred dollars to something it recommends it will the system will allow you to
give to whatever charity you want however it will then also tell you hey here's a few really highly
effective ones ones where your hundred dollars will go really really far and really make a huge difference
and then the website allows you to do a kind of a slider where it says hey you know do you want to
put you know maybe 30 towards this one and 75 toward that one or and if you want to just give to the one
you want to give to it it facilitates that too but it gives you some other information it's sort of
educational right it's like hey we see you're trying to give a hundred bucks have you ever thought
about this other thing and maybe instead of giving a hundred bucks just to this one maybe you go
50 50 split or something like that so that's one thing it does it also asks you if you would be
willing instead of taking your money and putting it directly into the charity would you instead be
willing to take your money and put it into a fund that will fund the next person who comes around or
maybe a person you know a month from now or whatever who wants to give to charity and the reason it does
that is because then the the system behind the scenes is instead of going directly to the charity if you
put it in their fund then their fund can accrue interest on it and in with their investments and
whatnot for that month and then when it gets paid out later what they do is put some sort of match on top
of your donations so in the long run your charitable donation of a hundred dollars might be worth
150 or something if you're willing to trust his organization that you know they'll make a good
judgment with that later and i'm i'm broad stroking through this a little bit but the general idea and
what made me think about all this is that it's again a clever business model they'll let you do
just giving to charity they'll also try to educate you on what some good potential charities might be
and maybe hey maybe you want to split 50 over here and 50 of your donation over there which is not a
thing that really most most of these things do and then on top of all of that it's also building a
background fund that will passive that passively earns enough money where they will also contribute
additional money on top of your donation if you're willing to just kind of delay your donation for a
little while and again it's sort of like an everybody wins thing right you get to give to what you want
you also get to give to some things that maybe you didn't realize were so incredibly effective and in the
episode and i'll link to it he goes through some examples on this of like stuff that's very highly
effective and what that looks like and things like that so you get to learn about that you can then
give to that on the spot if that if you are so inspired and you can actually if you set it all up
the way they want you to your money can stretch even further than it would have if you just gave
to your charity down the street or whatever it's like a business model for good right and it's it's clever
and it works and from what i understand they're growing he mentions that they're up to some
you know a few million dollars i forget if that was in a fund or if that was million dollars several
million dollars have been given or i can't remember the all the the exact details but it's it's a great
episode overall because he can't the episode kind of seamlessly moves between like well listen to it
for yourself but but they pair up this idea of this charitable organization with the trolley problem
where it's like oh do you pull a lever and kill five people or one kind of thing
and the idea this guy's done a bunch of research on that i guess over time and the idea is that this
is almost like the flip side of it like this is how you instead of worrying about are you gonna
kill five or one here's how you can help five or one or both right but take a listen to the episode
i'll link to all this stuff but if you're in the i don't know this sounded this sounded like a very
up my alley kind of thing and if you're if you're moving toward doing some giving this season i would
strongly say to take a look at this that i probably should name it giving multiplier uh is the the thing
and again there'll be a a link to that in the description but take a look at it and and it explains how
it works and you know whole episode on this from you are not so smart definitely worth taking a listen
to if you're in the you know in the market for that sort of thing this season