Consumer driven pricing and personalization in the airline industry


There are several ways for companies to distinguish themselves in the way they price their products and services. They can choose for group pricing, which segments customers in groups that tend to behave similarly towards prices. For example, customers can be grouped based on age (such as student discount), gender or living area. Another option is to use versioning: to offer a product line and let customers decide on the trade-off between quality and price. The last form of differential pricing is perceived as difficult to achieve, namely personalized pricing. This means each individual customer receives a personal price for a specific product or service (Schofield, 2018). You may think that, in an offline world, no customer would accept personalized pricing. Can you imagine buying bread and cheese at a grocery store, and the person in front of you pays less for the exact same groceries? However, in an online world, this method has become a lot more feasible. Actually, there is a large chance you have already experienced personalized pricing online. One of the most obvious examples is eBay: one of the first companies to implement personalized pricing with their worldwide market place platform. However, it is important not to interpret personalized pricing as dynamic pricing. The main difference between these two forms of pricing is the variables that determine the final price. In dynamic pricing, the variables that are taken into account are, for example, time of the day, available supply or competitors’ prices (Baird, 2017). Personalized pricing has a customer focus and is interested in a specific customers’ behavior. Companies use data analytics to identify characteristics of the purchase environment or the customer’s profile and behavior that impact their willingness to pay. Bertini and Kounigsberg (2014) argue that the success of personalized pricing depends on at least the following three factors. First, abundant, high-quality data is needed. Also, the companies need to overcome various organizational challenges that come hand in hand with dedication to advanced analytics. Last, companies should be prepared to deal with customers who claim that the pricing approach is not fair.

Airline industry

One of the largest industries that divides consumer groups and price accordingly, is the airline industry. Different fares are charged for the exact same product, based on a market segment’s perceived ability to pay. For example, business travelers tend to pay more for their ticket as compared to leisure travelers, even when they fly the exact same route (Sumers, 2017). The key success is working to learn what the customer needs. Lufthansa, the largest European airline in teams of fleet size and passengers carried in 2017, is testing various approaches to better understand their customers. For example, they have deployed Bluetooth beacons and sensors, to be able to send out real time messages to their customers. When a targeted customer goes through security and has Bluetooth enabled on their phone, the personalization process is started. Or as Lufthansa calls it, the “Big Data Engine”. This program checks a traveler’s mobile boarding pass and looks at how much time the traveler has left before departure. If it is more than a set amount of time, the system examines the traveler’s profile in order to determine whether the customer would be interested in the “Miles and More” program, a discount for access to the airport lounge. This information is combined with the data from the sensors in the lounge, that register whether and how much space is left in the lounge, in real time. This lounge promotion program is part of SMILE., a companywide program that is dedicated to personalizing travel (Lufthansa, 2018). Companies can also use traveler data to offer two or more products or services as a package, increasing profits as it allows companies to appropriate a larger share of customer surplus, known as bundling (Hinterhuber and Liozu, 2014).

Future chances

Although airlines have quite an advanced personalized pricing and recommendation system, there is more potential to be revealed in the future. Lufthansa is working on larger projects that try to develop a Netflix-style algorithm that seeks to guess where its most frequent flyers would like to go to next (Sumers, 2017). The airline then offers a personalized price and ticket to this customer, and further develops its algorithm using customer data. For airlines to stay competitive, they need to keep a close eye on the current and future changes in the market. First of all, airline companies should fully embrace innovation. Data should be used not only to cut costs and to be able to deliver the cheapest flight tickets, but also to facilitate new customer experiences and deliver more personalized services. This leads to an increase in importance of brand loyalty, as consumers are more closely connected to the airline that is best at personalizing their prices and services. Last, the mobile wallet should be seen as the central hub for the digital consumers. Mobile transactions are a lot richer in terms of data collection and analysis, and it provides access to end-consumers, which can drive more sales (Popova, 2016)

 

Sources:

Baird, N. (2017) “Dynamic vs. Personalized Pricing”, https://www.rsrresearch.com/research/dynamic-vs-personalized-pricing, accessed at 13th of February 2018.

Bertini, M. and Koenigsberg, O. (2014) “When Customers Help Set Prices”, MITSloan Management Review, accessed at 14th of February 2018.

Hinterhuber, A. and Liozu, S. (2014) “Is innovation in pricing your next source of competitive advantage?” Elsevier Inc, accessed at 14th of February 2018.

Lufthansa (2018) “Official website”, http://www.lufthansa.com, accessed at 14th of February 2018.

Popova, N. (2016) “Has Personalization of Passenger Experience Entered a Critical Stage?”, https://skift.com/2016/12/29/has-personalization-of-passenger-experience-entered-a-critical-stage/, accessed at 14th of Febuary 2018.

Schofield, T. (2018) “Price discriminations: definition, types, and examples”, https://study.com/academy/lesson/price-discrimination-definition-types-examples.html, accessed at 13th of Febuary 2018.

Sumers, B. (2017) “Airlines Become More Sophisticated With Personalized Offers for Passengers”, https://skift.com/2017/02/03/airlines-become-more-sophisticated-with-personalized-offers-for-passengers/, accessed at 14th of February 2018.

How can I make my 1$ Million contest worth its money?


Innovation tournaments are an important tool of organizations today to tackle important innovation challenges. One of these examples is Netflix, who rewarded $1 million to the winner of their innovation tournament for improved movie recommendations. However, many managers struggle with the question how, and if, to influence the outcomes of these open innovation settings by providing in-process feedback. The study of Wooten & Ulrich (2017) aims to address this managerial challenge by investigating the effects of feedback on the participation and the outcome of innovation tournaments. (Wooten & Ulrich, 2017)

To investigate these effects are six field experiments conducted among two real-life online contest platforms. Each of the six field experiments performs a contest in search for a new company logo, is open to all participants, is unblind (all ideas and feedback are visible to all participants), and allows for multiple entry of participants. In each contest are the participants randomly selected to three different in-process feedback treatments. Consumers received either no feedback, ‘random’ feedback (feedback is not associated to the idea submitted), and direct feedback based on the submission made. The quality of each submitted idea is judged by a panel of consumers that fall within the stated target group. (Wooten & Ulrich, 2017)

One of the results that the researchers found was that contest participation can be boosted with in-process feedback, especially when the feedback is directed. However, the result indicated that this boost was little with respect to engaging new participants and mainly increased the number of entries. This boost in participation can be explained by increased engagement, as participants may feel more connected to the process. (Wooten & Ulrich, 2017)

The other results measured the outcomes of the contests and were evaluated in two ways, either on the quality of the ideas, or the variance in quality among the ideas. In line with Hildebrand, Herrmann & Landwehr (2013) either feedback provided resulted in idea generation that tends to move towards the average, resulting in less variance of quality. In addition, they found that the quality of ideas varied less in their second entry when a first submission was already of high quality. The quality measurement, however, did turned out to be affected by the type of feedback treatment that was used. The directed feedback treatment proved to be beneficial for the next ideas submitted, where random feedback actually resulted in a negative effect for subsequent submissions.  This effect was to be expected as Alexy, Criscuolo & Salter (2011) indicated that signalling information (of which feedback can be seen as such) can ensure that incoming ideas are of higher fit, and therefore might be judged as higher quality. (Wooten & Ulrich, 2017)

The question remains what do these result imply for the management community. As indicated earlier are managers struggling how, and if, to influence their innovation contests. This study provides valuable information to these managers on how they can support their specified targets. For example Alexi et al (2011) identified that some organizations use open innovation mainly to increase engagement, but do not focus on the outcomes of it due to the evaluation costs. This study provides valuable information that feedback increases the participation regardless of the feedback that is provided. This would mean that organizations can invest relatively little in providing feedback, as it can be meaningless, and still boost the participation to the contest. On the other hand this study is showing as well that if an organization is willing to invest time and effort, it can increase the quality of ideas by providing actual directed feedback to the ideas. (Wooten & Ulrich, 2017)

Although these results could be beneficial to organizations, manager should be aware of the weaknesses of this study. One of these weaknesses that this study experiences is that it measures solely the effects of daily feedback, and therefore didn’t incorporate different timeframes. Studies in other fields, such as retargeting adds, identified that customers did turn out to be sensitive to timeframes in which a response was received (Moriguchi et al., 2016). Future research should investigate if this applies in the field of innovation contests as well, but until that point should managers be cautious in choosing their feedback timeframes. Furthermore, the star rating feedback can be seen as a too simplistic method of providing feedback. It provides the advantages that results can be easily compared and that there is no ambiguity in the meaning of the feedback. The generalizability, however, is at stake for more technical contest in which the feedback actually is required to be more in-depth to give a sense of direction. Nevertheless, these weaknesses do not hamper the practical implications but should be used as a note of caution. (Wooten & Ulrich, 2017)

References:

Alexy, O., Criscuolo, P., & Salter, A. (2011). No soliciting: strategies for managing unsolicited innovative ideas. California Management Review, 54(3), 116-139.

Hildebrand, C., Häubl, G., Herrmann, A. and Landwehr, J.R. (2013). When social media can be bad for you: Community feedback stifles consumer creativity and reduces satisfaction with self-designed products. Information Systems Research, 24(1), 14-29.

Moriguchi, Takeshi and Xiong, Guiyang and Luo, Xueming (2016). Retargeting Ads for Shopping Cart Recovery: Evidence from Online Field Experiments.

Wooten, J. O., & Ulrich, K. T. (2017). Idea generation and the role of feedback: Evidence from field experiments with innovation tournaments. Production and Operations Management, 26(1), 80-99.

Image retrieved from:

Markets insider (2017). Netflix lost the biggest Emmy to Hulu  – but its customers couldn’t care less (NFLX), Retrieved fromhttp://markets.businessinsider.com/news/stocks/netflix-stock-price-emmy-2017-lost-to-hulu-but-its-customers-couldnt-care-less-2017-9-1002379405, 15-02-2018.

Philips HealthSuite: Digital Revolution


Healthcare Management Will Never Be The Same
Today people are more connected in more places than ever and we are becoming more active participants in our own health. At the same time healthcare providers are looking for deeper clinical insights and actionable information to make better decisions and improve patient outcomes. A digital revolution in healthcare might take place by the innovative launch of an online healthcare platform initiated by Philips. The Philips HealthSuite is an open platform of service capabilities and tools designed to inspire and enable the development of next generation connected health and wellness innovation. Imagine a mobile app paired with connected health devices that allows people managing diabetes to capture and monitor their diet, glucose, insulin and more, all from their smart phone. The same data can be shared with their healthcare providers so that they 1) get a better insight into the medical conditions 2) get reminders and alerts for medication and testing 3) have a program to support the persons individual treatment plan and 4) a curated social community of others managing diabetes. Unlike other cloud computing platforms, HealthSuite is purpose-build for healthcare. It’s health optimized infrastructure allows seemless integration with existing heath enterprise ecosystems (Philips.nl, 2018).

Philips HealthSuite Business Model
The highly innovative business model is based on connecting multiple stakeholders: pharmaceutical companies, patients and care professionals. Main goal is to establish and strengthen this medical network by digital connected devices from Philips.

  1. Where are the revenues coming from?
    Both pharmaceutical companies, patients and care professionals pay for using the online HealthSuite platform. Moreover, they have to buy the digital connected devices from Philips in order to be connected to the network. This is how Philips will mainly increase its revenue streams.
  2. What value is delivered to which markets?
    Philips’ main goal is to deliver customer value to people who need medical care, e.g. elderly or people with certain diseases. These customers will get more personalized care which they can monitor by themselves and which results in a more efficient treatment. After all, this treatment will be less stressful for patients since they are now able to stay in their own environment at home instead of going to the hospital. Patients thus get more personalized care which is the main value that Philips delivers to them.
    Secondly, Philip’s delivers value to the other side of the healthcare sector, i.e. the healthcare providers. By delivering an online platform and highly innovative infrastructure, it becomes less time-consuming for healthcare providers to monitor and treat their patients. Healthcare providers share their knowledge via the HeathSuite platform and can communicate with patients easier. Healthcare providers thus get more chance on sharing knowledge, provide efficient treatments and could thus increase their positive impact on patients via the digital platform.
  3. What costs are involved in delivering that value?
    Philips has to invest in research and development of digital connected devices and the online platform infrastructure. Another important cost item is the security of customer data which is very vulnerable in healthcare. Philips thus needs to invest in 1) improving the platform and innovating its products and 2) monitoring the data streams in order to protect data leakage.

CaptureFigure 1. HealthSuite Platform Stakeholders (Philips.com, 2018)

Theoretical Point-Of-View
Following Grönroos & Voima (2013), customer value creation depends on product and service interrelationships and product and service bundling. This resource integration-based view implies that customer satisfaction partly depends on its overall goodness of fit (Solomon and Buchanan, 1991). The Philips HealthSuite Platform does connect multiple stakeholders by providing a highly interactive platform where all stakeholders are connected and where both medical devices (products) and medical care (services) are bundled together. For example, a patient can monitor its own treatment at home while doctors can follow his or her results digitally. When needed, doctors can communicate with the patients and can provide them some extra treatments, such as medicines. Doctors will then switch to pharmacists via the platform to connect them with patients. In this case, Philips delivers customer value by interrelating products and services and bundling them together.
Following Karwatzki et al. (2017), individuals’ privacy valuation is a strong inhibitor of information provision in general. Following this line of reasoning, service providers need to align their service designs with consumers’ privacy preferences. Although Philips HealthSuite Business Model might be valuable in terms of revenues and costs, there is an important risk to consider. Medical data in healthcare industry is very sensitive and vulnerable. Patients may feel scared by sharing their personal data on such a highly intensive network. How will Philips elaborate on these dangers?

Capture 2Figure 2. Patient Relationship Management (Philips.com, 2018)

Call-to-action
A digital revolution in healthcare might take place by the innovative launch of an online healthcare platform initiated by Philips. Although this might be beneficial for many different stakeholders and delivers great customer value, we need to consider the ethical and legal dilemma’s of this revolution and protect customer privacy.

Are you curious?
In collaboration with Radbout University, Philips designed a digital application where patients can monitor their own diabetes and are able to share their results with professional doctors and other patients. The following video illustrates a prototype that could help patients with type-1 diabetes. Link to YouTube Video: HealthSuite Philips

Bibliography
Grönroos, C., & Voima, P. (2013). Critical service logic: making sense of value creation and co-creation. Journal of the academy of marketing science, 41(2), 133-150.

Karwatzki, S., Dytynko, O., Trenz, M., & Veit, D. (2017). Beyond the Personalization–Privacy Paradox: Privacy Valuation, Transparency Features, and Service Personalization. Journal Of Management Information Systems, 34(2), 369-400. doi:10.1080/07421222.2017.1334467.

Solomon, M. R., & Buchanan, B. (1991). A role-theoretic approach to product symbolism: mapping a consumption constellation. Journal of Business Research, 22(March), 95–109.

https://www.usa.philips.com/healthcare/innovation/about-health-suite

http://www.smarthealth.nl/trendition/2014/10/13/radboud-en-philips-werken-samen-aan-open-cloud-gebaseerd-zorgplatform/

Author
Daan Verpalen, Student MSc. Business Information Management, Erasmus University, Rotterdam School of Management, 2018 (studentnumber: 374199)

NASA: Crowdsourcing the Universe


NASA has always been considered a symbol of scientific progress. Its task, the study of the universe, is without doubt something that requires a lot of work, from all of us. NASA is aware of this and has taken one of its first steps into its own new frontier: Crowdsourcing. Since 2011, NASA has been using crowdsourcing to help them solve some of the problems that arise on the International Space Station (ISS), from coming up with solutions regarding the difficulties of astronauts exercising in space, to searching for new planets. All these crowdsourced initiatives, framed as challenges, draw people from all over the world, and to date, more than a dozen platforms exist to host the challenges.

In the past, NASA’s aversion to crowdsource has primarily been a result of its culture. NASA Senior Policy Advisor Amy Kaminski declared that “The greatest challenge the use of crowdsourcing methods at NASA has endured is in their relative newness and lack of familiarity within most of the agency. Scientists and engineers at NASA are used to particular ways of doing R&D, and this usually entails doing work within the agency or having it done by groups within academia or industry via grants, contracts, and cooperative agreements. Crowdsourcing involves opening up the R&D participant base, which introduces uncertainty even while opening new and exciting possibilities for finding solutions to problems of interest and accelerating research work”. However, NASA’s initial mental closure began to evolve with the arrival of both private space companies and the rapidly growing ambitions of politicians to reach the stars.

The New Crowdsourcing Frontier

In 2014, NASA Deputy Chief Technologist Jim Adams stated “NASA recognizes that crowdsourcing presents an extraordinary opportunity to inspire the development of transformative solutions by offering a means to engage with non-traditional sources of innovative ideas, all in a remarkably cost-effective way”. Adding to this, Steve Rader, Deputy Manager of the Centre of Excellence for Collaborative Innovation (CoECI) at NASA, explained “If you have large crowds of hundreds of thousands, or even millions of people in communities, it is likely that you actually have within those communities some very valuable high-skilled folks. The idea is that somebody who can solve your very difficult problem often does not have traditional experience”. In fact, a main reason why crowdsourcing works so well is that a lot of the time, solutions are found by people who do not have the same area of expertise as the problem.

Some of NASA’s biggest crowdsourcing initiatives were related to its desire to know more about the Solar System. For example, their lunar instruments crowdsourcing campaign focused on NASA’s desire to better understand the Moon. Similarly, its Mars campaign, aimed at college students, was designed to find resources on Mars. It started with the Mars Forum, which used IdeaScale’s technology to engage the crowd and develop ideas while answering questions. As it progressed, college students could build and submit their own robots that were able to autonomously perform mining tasks. These are just a few examples of the several crowdsourcing projects undertaken by NASA.

The last and still ongoing initiative, hosted by crowdsourcing program Zooniverse, is the hunt for Planet Nine – the large, mysterious body thought to lurk at the edge of our solar system –. Ordinary people have now joined the search, and they have made some very interesting findings. Through the project, dubbed “Planet 9 Search”, space enthusiasts and astronomers alike are given access to thousands of images taken by ANU’s SkyMapper telescope. Their task is to find anything that appears to move against the mostly motionless background of distant stars. In just three days, about 21,000 volunteers examined more than 100,000 images and classified more than 5 million objects. This is work that would have taken an astronomy PhD student four years, according to ANU astronomer Brad Tucker.

“Planet 9 Search” Project Advertisement 

Why NASA Crowdsources

Crowdsourcing can reduce costs, speed up project timelines, tap into crowd intelligence and creativity, and engage citizens at all levels of corporate and government processes. Many large corporations such as Microsoft, GE, AT&T, eBay, IBM, Apple and Sun (West 2003) and government agencies such as NASA (Lakhani, 2013), are increasing investment in crowdsourced solutions to gain the potential value of crowdsourcing as an open innovation platform, to both drive cost efficiencies and overcome resource constraints. Specifically regarding NASA, one of the aspects that makes all of this possible is that, while solving most problems requires significant scientific knowledge, the problem itself requires minimal integration into NASA’s internal operations.

How NASA uses crowdsourcing is enlightening. It allows NASA to try several different ideas at once and sort through those that work and those that do not. If you give it a thought, NASA has the kind of challenge that would make any person cringe: Get humanity beyond the sphere of Earth and explore the universe. And as if this was not enough, it all has to be done on a budget entirely controlled by politicians. This often means they get only one opportunity at constructing something, and adding to the pressure, if that device fails, the lives of astronauts could be at risk. So crowdsourcing lets them look carefully at ideas, both conventional and unique, and lets them narrow it down to the ones that work. With respect to the intellectual property (IP) of such ideas, organizers of challenges will sometimes reserve all rights to the IP of the knowledge/technology generated from the competition and applicants are always encouraged to read the terms and conditions of a challenge.

NASA’s crowdsourcing efforts are not just about finding the best idea, but also getting some of the best talent the country has to offer. It is no secret government agencies can have trouble getting the best and brightest people, and these competitions offer a look at some of the finest minds out there. Moreover, in addition to the value of ideas and talent, announcing winners and prizes is often used as a promotional and marketing tool for the organization, as it provides “good news” stories to share on Social Media. Even participants that do not win may see an increased investment in the company as a result of feeling a part of the process.

NASA 2.png

Example Tweet (Space Apps is a NASA incubator innovation program) 

From a contributor’s perspective, NASA’s crowdsourcing initiatives are appealing not only because of cash prizes, but also because they are designed towards building relationships with its contributors, possibly also offering some of them an employment contract at NASA. As teams compete not just for the cash purse, but also for the associated validation, prestige, and satisfaction that result from solving important problems, challenges can incentivize significant additional investment, leveraging the award’s impact. According to several contributors, the real reward is helping NASA solve a space/engineering problem and gaining critical thinking and skills that are highly sought by employers.

It is therefore clear that there is a lot other firms can learn from NASA’s crowdsourcing. It is much more than just a way to get external ideas: Innovation strategy can truly transform an organizational culture. As a matter of fact, to conclude, it can boldly be stated that crowdsourcing has been “one small step for its innovation strategy, one giant leap for NASA”.

 

References

“Crowdsourcing Innovation at NASA: Q&A with Amy Kaminski.” Dialogue Review (2017). Retrieved from http://dialoguereview.com/crowdsourcing-innovation-with-nasa-q-and-a/

Day, J. “How NASA is Crowdsourcing its Innovation Strategy.” Ideascale (2017). Retrieved from https://ideascale.com/24571/

Dodgson, L. “How to get involved with NASA: Crowdsourcing ideas for Mars houses, robots, and space poop.” Business Insider Nederland (2016). Retrieved from https://www.businessinsider.nl/how-to-get-involved-with-nasa-2016-11/?international=true&r=UK

Ford, Robert C., Brendan Richard, and Michael P. Ciuchta. “Crowdsourcing: A new way of employing non-employees?.” Business Horizons 58.4 (2015): 377-388.

“Implementation of Federal Prize Authority, Fiscal Year 2013 Progress Report.” (2014). Retrieved from https://obamawhitehouse.archives.gov/sites/default/files/fy2015_competes_prizes_report.pdf

Kaplan, S. “Citizen scientists may have located candidates for Planet Nine.” The Washington Post (2017). Retrieved from https://www.washingtonpost.com/news/speaking-of-science/wp/2017/04/04/citizen-scientists-may-have-located-candidates-for-planet-nine/?utm_term=.59d019290aa6

Lakhani, K. “The crowd as an innovation partner: Lessons from NASA, Harvard Medical School, and beyond.” Presentation at the TopCoder Roadshow, Johnson Space Center, Houston, TX (2013)

Pearson, D. “NASA’s Crowdsourcing Is Out Of This World.” (2015). Retrieved from https://smbp.uwaterloo.ca/2015/10/nasas-crowdsourcing-is-out-of-this-world/

“Problem Solving Approaches at NASA: Challenges, Prize Competitions, and Crowdsourcing.” Retrieved from https://www.nasa.gov/content/prizes-challenges-and-crowdsourcing-advance-nasa-s-mission-and-outreach

West, J. “How open is open enough?: Melding proprietary and open source platform strategies.” Research policy, 32.7 (2003): 1259-1285

Duolingo: Making money from your translations


Introduction

Most of you will know the app Duolingo. For those who don’t, it is a language-learning app that is used worldwide with 200 million users that can choose many languages to learn. Maybe you have tried to learn Spanish, French or another language on the app. What most people like about the app is the way it brings gamification to learning a language. Also, and not unimportant is that the app is free to use. But how does Duolingo make its money?

How did Duolingo start?

Duolingo started by a question raised by Luis von Ahn (the founder of RE-CAPTCHA and Duolingo) in 2009, wondering how the internet could be translated into every major language using the knowledge of a 100 million people for free?

People initially wondered why translations couldn’t just be done using computer translations. However, computer translations at this moment and even more so back in 2009 were not good enough to translate texts on the internet without mistakes. Besides, another option, using professional translators, would require an enormous investment that no firm is willing to pay for.

How did Duolingo manage to ‘recruit’ a 100 million people to translate the internet? The two main obstacles they faced is that there is a lack of bilinguals in the world and a lack of motivation to translate texts for free. They solved both issues with one solution.

Millions of people worldwide want to learn a new language and usually pay quite a hefty fee for doing so, either by paying for classes or for software. Duolingo lets users learn a new language for free using their app while simultaneously translating the web. As a beginning user, you’re given very simple sentences/words from the web which you must translate. The quality of your translation is then checked with the results of the translations of other users, and after a translation has been cross checked several times it gets combined into a verified translation. As you progress you will start getting more complicated texts which both helps the learner and Duolingo.

Monetization

The company was started with the concept of a fair business model for education. Currently the business model for education is that the student pays for his courses with fiat. However, many students worldwide don’t have the funds necessary to pay for education. As such they can pay in a different way by using the app and investing their time in learning the language. By doing so they create value for Duolingo by translating text on which they can monetize by selling the translations to companies who want them. Though this was the initial core revenue model, nowadays Duolingo is focusing more on gaining revenue from their Test Center Certification Program as it is not the mission of Duolingo to become a translation business but to stay an education company. Moving forward the new direction of Duolingo is emphasising on becoming an adaptive platform that tailors teaching to the strengths and weaknesses of individual learners driven by feedback from language students using the app. The ultimate goal for the company is to give every student access to a private virtual tutor with the use of their technology.

Sources:

https://techcrunch.com/2015/06/10/duolingo-raises-45-million-series-d-round-led-by-google-ventures-now-valued-at-470m/

www.duolingo.com

 

Peaks: investing your change


Do you feel demotivated seeing your interest fall to 0.05%? Would you like to invest your money but do you not know where to start? This is where Peaks comes in. Peaks believes that investing should be for everyone, not only for the happy few!

How does it work?
Peaks digitally collects your change by rounding up all your purchases to whole euros. Let’s assume you bought a coffee for €2,40, Peaks will then automatically transfer €0,60 to your investment account. If you don’t want to provide Peaks access to your account, you can also choose to transfer let’s say €1, – a day to your investment account. The Peaks App provides an easy overview of the amount saved and the current value of your investments. All you have to do is determine the amount of risk you would like to take choosing from four risk levels, where a higher risk corresponds to a higher expected return. The video below outlines the idea behind Peaks, although it’s in Dutch, I’m sure you’ll be able to follow.

Business model
The Peaks business model is based on joint profitability of both the investors and the company itself. The investors benefit since they are able to invest small amounts of money, which they would otherwise not have been able to invest due to the high one-off investment costs charged by funds (Peaks, 2017). Since many investors invest small amounts of money, Peaks can share investment costs among this large group.  Peaks itself on the other side, benefits from profits the investor makes in two ways. First, higher profit motivates investors to invest more money, resulting in an increase in fees being paid to Peaks. Secondly, higher profit motivates new customers to join the platform. With regard to switching costs, there are alternative investment platforms which accept small investments, such as ‘Semmie’. However, since Peaks is a startup financed by Rabobank, its integration with the Rabobank banking system differentiates it from competitors. According to Peaks, integration with other banks will follow soon. Hence, switching costs in terms of convenience are quite high for Rabobank customers yet slightly lower for customers of other banks.

In terms of institutional arrangements, power given to investors is limited. An interesting comparison is Dell computer. Research looked at the degree of user design customization that was optimal when selling a computer. Turns out that the majority of people actually had no idea about the technical specifications of a computer. Letting customers customize their computer using technical design parameters hence resulted in a ‘design defect’: a choice of design parameters that does not maximize user satisfaction (Randall T., 2005). Such design defects can be mitigated by using ‘needs based interfaces’: instead of asking would you like “512MB,DDR,333MHz 2 Dimms or a “512MB,DDR,333MHz 1 Dimm” memory they would ask “do you find the performance of program X important”. In a way, the same can be applied to investing in the stock market. Since the target group of Peaks is unfamiliar with investing money and has little knowledge about the financial market, they are given only a limited degree of freedom. The only question investors are asked is, ‘how much risk would you like to take’?  Based on this level of risk, four different funds are possible: mild, spicy, very spicy and hot. According to your risk preference, the ratio of stocks versus bonds is set automatically. Using this ‘needs based’ approach rather than a ‘parameter based’ approach limits the chance of a design defect occurring and hence increases user satisfaction (Randall T., 2005).

Looking at the institutional environment, the social norms dimension is particularly applicable. Peaks plays into the current movement of Corporate Social Responsibility by banning funds that invest in controversial businesses such as weapons, alcohol/tobacco production and pornography. In terms of polity and judiciary dimensions, Peaks has a permit and is being supervised by the Dutch Authority for Financial Markets. (Peaks, 2017)

Peaks 2

Sounds great! Why not invest?
Empowering everyone rather than just the happy few to get a return on their savings sounds like a great cause. Moreover, expected returns in terms of percentages sound decent. However, after deducting the yearly costs, returns of some of the portfolios become negative. Considering that people investing at Peaks usually have little affinity with investing money, having such low transparency is appalling. For example, if you would like to invest for a period of 1 year with an investment of €30 a month your returns would be as follows (Drabbe, 2018):

  • Mild portfolio: – €3,79
  • Spicy portfolio: – €2,02
  • Very Spicy portfolio: – €0,10
  • Hot portfolio: €1,82

In conclusion, if you want to make money using Peaks you’re going to have to invest more than €30,- a month, which contradicts the whole idea of investing your change. It’s a shame since I believe the idea has a lot of potential! What are your thoughts on the topic? Would you invest your money using Peaks?

Sources:

Carson S. J., D. T. (1999). Understanding Institutional Designs Within Marketing Value Systems. Journal of Marketing Vol 63, 115-130.

Drabbe, M. (2018). Peaks: beleggen met je wisselgeld. Retrieved from Consumentenbond: https://www.consumentenbond.nl/sparen-en-beleggen/peaks-beleggen-met-je-wisselgeld

Peaks. (2017). De app. Retrieved from Peaks: https://www.peaks.nl/de-app/

Randall T., T. C. (2005). Principles for User Design of Customized Products. California Management Review.

The world is your (peer)space


Want to throw an awesome party or work in a creative environment? But you cannot find the perfect space? Today, we live in a world where you can easily rent out your house, car or offer your skill set to others in exchange for a fee. So, why can’t you rent out your office space? Look no further. The app Peerspace will help you find your perfect space!

Tell me more

Peerspace, launched in 2014 and founded by Rony Chammas and Matt Bendett, is an online peer-to-peer marketplace that connects individuals and businesses to find one-of-a-kind spaces that otherwise go unused (Peerspace, 2018). The idea emerged when Rony was a student at NYU trying to find meeting places, and saw how much open and underutilized space there was (Bercovici, 2014). Finding spaces with benefits for both parties mostly happen through word-of-mouth or platforms as Craigslist, which is inefficient. Therefore, Peerspace’s mission is to find and book short-term space through an easy and transparent process (Peerspace, 2018). Whether looking for personal or professional space, Peerspace is the solution for finding unique locations for meet-ups, pop-ups, and classes to off-sites or brainstorming sessions. Currently, Peerspace is available in the USA and the start-up has raised 18 million dollars from funders (Magistretti, 2017). The popularity of the platform goes not unnoticed as 60,000 people from world-class companies (Google, Vice) attend a Peerspace booking every month (Peerspace, 2018).

 

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“Tinder for leftovers”, or how OLIO helps you find the best match for your unwanted food


You bought too much food this week but tomorrow you go on vacation, so you don’t know what to do with it? Or have you changed your mind for what to cook and want to get rid of the food you have in your fridge but you feel bad throwing it away? Maybe your unwanted veggies will be your next-door neighbor’s treasure but you never talked to them before so you think it might be awkward offering them your food? Worry no more, OLIO will solve your problem and save your food from being wasted!

What is it?

OLIO is an app that started the food sharing revolution in 2015. Classified as the “tinder for leftovers” (Vaughan, 2017), OLIO helps you connect with people around you, as well as with local businesses in order to share your unwanted food with others, instead of throwing it away. The idea for developing the app struck Tessa Cook in December 2014 while she was packing up her apartment in Switzerland, ready to move back to the UK. As it normally happens at moments like this, she had food left in her fridge that she couldn’t finish but also did not want to throw away. After realizing how much food ends up being thrown away in similar situations, she teamed up with a friend of hers, Saacha Celestial-One and the two of them started working on the idea of OLIO. The vision guiding the two women was to create a world in which “nothing of value goes to waste, and every person has enough to eat” (Olioex.com, 2018). Even for the short period of its existence, the app has become a huge success. Currently it has more than quarter million users in 41 countries worldwide, and nearly half a million food pieces have been saved since the app started.

How does it work? 

The way OLIO works is simple and intuitive. Each user has a profile page where they can put a photo and briefly describe who they are. After setting up their profile, app users just need to add a photo and description of the item they want to sell, as well as specify from where and when the item can be picked up. The app has a browsing catalog with all items available near the user. Once the users have found a product they like, they simply need to request it and arrange convenient time to pick it up with the seller via a private message. Users can also rate and review other users based on the experience they have had with them. This also facilitates a safer sharing process, as users can decide for themselves with whom to share their food based on the other’s profile and ratings.

Reducing food waste through shared economy

OLIO is an example of how shared economy can be used to tackle one of the major problems societies face today: food waste. Studies shows that as much as 50% of the food produced globally is never eaten and is thrown away, making the food waste a $1 trillion problem (Olioex.com, 2018). By providing a C2C platform that connects people who want to share their food, the app does not only help in cutting food waste, but also brings people, especially neighbors, together and builds a food sharing community. The founders initially did not raise any revenues, as the main goal was to grow their network and gain more popularity. Currently, the revenue-based business model is followed, as the app charges commission fees for those items that are paid directly through the app or for donations made through the app. Nevertheless, buyers and sellers are also given the opportunity to just use the app to connect with each other without making any payment transactions through the app. In these cases, sellers can post their unwanted food items for free, while buyers derive a benefit by getting food items for free or for  super low prices (Nair, 2016). In this way joint profitability is achieved for all parties involved.

What’s next?

After seeing how successful their OLIO initiative has become, the founders took a next step by teaming up with two charities, Feedback and FareShare in order to increase the reach of their fighting-food-waste efforts. A new addition to the app allows users to add not only food, but also other household items and to request a pay-as-much-as-you-like donation for one of the charities (Olioex.com, 2018). The founders have also started collaborations with more than 11,000 volunteers who have the mission to spread OLIO’s vision and goals around the world.

The food sharing revolution that OLIO has started is now also embraced by other companies. Leftoverswap, Foodsharing.de and Eatro are among the other apps offering similar ways in which people can share their food. Despite the fact that competition for OLIO is growing, the rise in other initiatives supporting food sharing can only be seen as something positive, as it brings society a step further in its fight with food waste!

 

References:

Nair, P. (2016). Food waste: there’s an app for that. [online] Growth Business. Available at: http://www.growthbusiness.co.uk/food-waste-theres-app-2543941/ [Accessed 2 Feb. 2018].

OLIO. (2018). About. [online] Available at: https://olioex.com/about/ [Accessed 2 Feb. 2018].

OLIO. (2018). Charitable donations. [online] Available at: https://olioex.com/charitable-fundraising/ [Accessed 2 Feb. 2018]

Vaughan, P. (2017). The app that’s kickstarting a food-sharing revolution. [online] Huck Magazine. Available at: http://www.huckmagazine.com/art-and-culture/olio-app-food-free-socially-conscious-waste-sharing/ [Accessed 2 Feb. 2018].

GE crowdsourcing platform – Let’s set the collective brain on fire!


We live in a fast-paced digital world and it can be challenging for companies to keep up with the speed of today’s ever changing digital era. However, new information technologies have also empowered more technologically savvy businesses by giving them new means to operate, promote their products and services, and engage with customers. One company that is constantly taking advantage of these new tools is General Electric (GE), an enterprise who has succeeded in part because of its willingness to take risks and embrace innovative technologies. The most recent example of this mindset is Fuse, their new open innovation platform that launched in late 2016. It is basically an open crowdsourcing platform, which allows users from all around the world to collaborate with each other and work with GE engineers to solve meaningful technical challenges.

How does Fuse work?

The first step is for the Fuse team to translate GE customers’ needs and “pain points” into projects on the Fuse platform. Whereas most projects are straightforward and thus directly released in the form of challenges, some appear to be less clear and hence are uploaded on the “Brainstorming Section” of the Fuse platform as “potential challenges”. These potential challenges include a (rather extensive) description of the problem to be tackled as well as precise requirements for the solution, and contributors are asked (1) whether they would be interested in such a challenge, and (2) what additional questions the Fuse team should answer before launching the challenge. Based on the feedback received, the Fuse team might decide on further actions. When released, each individual challenge comes with a description of the problem, clear requirements for solution submissions, judging criteria, a timeline, a description of the prizes for the winners, and the official rules of the competition (including property right issues).

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Example of a Fuse challenge

In a second step, contributors from all around the world are invited to submit innovative contributions. Note that even though anyone can sign up and take part in challenges, the very technical nature of the challenges serves as a skills-based filtering mechanism as only people with a certain degree of knowledge in engineering would be able to understand the challenges. Once on the Fuse platform, anyone can have access to all the relevant information related to the challenges, however only registered users are allowed to submit entries. During the whole duration of the challenge, contributors can use the discussion board to brainstorm together or ask the competition holders questions. Not only does the Fuse team rapidly answer these questions and provide regular feedback/input, but they also organize “live Q&A sessions”, during which the participants can submit questions that are answered live in a video feed.

 The final step is for the Fuse team to evaluate the submissions, select the winners (generally the three best entries) and allocate the money prizes. The interesting entries are also forwarded to GE’s technical team, where they are further developed into implementable solutions.

Efficiency Criteria

In less than two years, GE succeeded in creating an innovative community and successful products from their contributions (Picklett, 2017). This was made possible for the following reasons: combination of extrinsic and intrinsic incentives, good management, and well-structured governance including the mechanisms recommended by Blohm et al. (2018).

From a contributor’s perspective, the Fuse platform and its challenges are interesting not only because of the cash prizes, but also because it is designed towards building long-term relationships with its contributors. For instance, competition winners actually have an opportunity to further work with GE engineers on implementing their designs (Kloberdanz, 2017). In addition, there is also an attractive physical part to Fuse projects, which consists in a micro-factory in Chicago designed for rapid prototyping, small-batch manufacturing, and modular experimentation (Davis, 2017). This faculty will be open to contributors and can constitute an incentive for them to become part of the Fuse community as it is a good opportunity to bring their ideas to life, work with GE professionals, and meet like-minded innovators. Finally, the Fuse challenges are also a good opportunity for contributors to collaborate with other brilliant mind, expand their business network, build their professional reputation, and gain recognition from their peers.

From GE’s perspective, the Fuse platform is a new source of innovative and ideas, which can speed up content creation, cut R&D costs for the company, and provide GE with an opportunity to spot talents who might be valuable additions to their team. But how is GE able to overcome the challenges inherent to crowdsourcing (e.g. huge quantity, low quality, free-riding behaviour, risks of sharing information)? First, due to the technical nature of the Fuse challenges, the clearly defined guidelines provided to the participants, and the rapid feedback/additional inputs provided during the competition, GE ensures that only a manageable number entries of a certain quality are submitted, thus facilitating the evaluation process. The platform is also clear about the transfer of PI rights, which avoids troubles along the way. Second, for most challenges, challenge, entries are private and only viewable by the creator, admins, and judging panel. As a result, GE is able to avoid free-riding behaviours. However, contributors are still able to communicate with (and help) each-other via the discussion board, and the Fuse team makes sure to encourage the discussion with feedback and additional information, hence allowing contributors to still learn from each other. Finally, even though opening up GE’s internal workings/information of some products in order to run these challenges can be risky, the company acknowledges that “there are certain risks you just have to roll with if you want to make progress and that willingness to take those risks is what makes this exciting.” (Davis, 2017). This quotes shows that GE understands the need to willingly take risks in order to continuously transform the company and, so far, Fuse seems to be worth it as GE reunited more than 8000 contributor successfully implemented several ideas generated by the platform in less than a year (Davis, 2017).

In summary, the joint profitability criterion is met as the Fuse platform creates value for both GE and its contributors. Furthermore, the costs linked to this innovative business model are relatively low as the Fuse team only consists of 4 employees based in Chicago (Pickett, 2017). However, as the platform matures, hosts more challenges, and attracts more contributors one can assume that the number of employees will have to increase. Still, the costs-benefits ratio should remain interesting compared to doing everything in-house. Finally, the legal concerns are taken care of thanks to inclusion of PI agreements in the official rules of the Fuse challenges, and the social norm dimension is met as GE is a well-known, reputable brand, hence building trust with contributors.

References

Blohm, I., Zogaj, S., Bretschneider, U., & Leimeister, J. M. (2018). How to Manage Crowdsourcing Platforms Effectively?. California Management Review, 60(2), 122-149.

Davis, B. (2017). How GE is using co-creation as part of its digital transformation. Retrieved from https://econsultancy.com/blog/68902-how-ge-is-using-co-creation-as-part-of-its-digital-transformation

Fuse. (2018). Fuse Platform. Retrieved from https://www.fuse.ge.com

Kloberdanz, K. (2017). Working The Crowd: This Fuse Will Set The Collective Brain On Fire. Retrieved from: https://www.ge.com/reports/working-crowd-fuse-will-set-collective-brain-fire/

Pickett, L. (2017). GE Fuse’s open innovation platform invites NDT professionals to co-create solutions. Retrieved from https://www.qualitymag.com/articles/94304-ge-fuses-open-innovation-platform-invites-ndt-professionals-to-co-create-solutions