Haas Profs. Christine Parlour and Steven Tadelis are among the researchers speaking at the Crypto Economics Security Conference on Oct. 28 and 29 in UC Berkeley’s Pauley Ballroom. The conference will explore the economic security aspects of blockchain technology, including game theory, incentive design, mechanism design, and market design.
Parlour, the Sylvan C. Coleman Chair in Finance and Accounting, will present her research on the investment characteristics of a sample of 64 initial coin offerings, and discuss asset pricing properties of cryptocurrencies. (Read a Q&A with Parlour here). Tadelis, the Sarin Chair in Leadership and Strategy, will outline how feedback and reputation systems work for online marketplaces like eBay and Uber, highlighting some of the bias in feedback and reputation systems.
Speakers at the conference, now in its third year, will hold sessions simultaneously on two ballroom stages. “It will be much more intimate than many tech conferences,” said UC Berkeley undergraduate student Liam DiGregorio, BS 21, who is a SF Blockchain Week co-organizer and head of external partnerships and business development for Blockchain at Berkeley, which is also a host of the week’s events.
Kate Tomlinson, MBA 20 and a business consultant at Blockchain at Berkeley, said she’s looking forward to a few days of immersing herself in blockchain. “One of the things I liked about the conference last year was the opportunity to meet people working on projects that we’ve been working on at Blockchain at Berkeley,” she said. “The conference also connects you to people who are really building this stuff and are at the forefront of what’s going on. The conference helps me to understand what’s really happening.”
Along with the security conference, Haas is co-hosting the Blockchain Career Fair at International House on Oct. 30 from 3:00 to 7:30pm, where more than 40 companies will be looking for blockchain talent. Last year, about 1,500 people submitted resumes online and 170 people landed jobs, DiGregorio said.
Epicenter Event and Hackathon
Following the conference and and career fair at Berkeley, the week’s events shift to San Francisco for the Epicenter Event, bringing together companies, developers, investors, and researchers. Among the speakers throughout the week are Ethereum founder and industry leader Vitalik Buterin and the founders of NuCypher, Forte, and Kabam. UC Berkeley Prof. Shafrira “Shafi” Goldwasser, director of the Simons Institute at UC Berkeley and the winner of the ACM Turing Award in 2012, will speak at the Epicenter Conference at San Francisco’s Marriott Marquis.
Researchers from Vanderbilt, Carnegie Mellon, Cornell, UC Santa Barbara, the University of Edinburgh, Northeastern University, New York University, and McGill will also attend.
The week wraps up with the DeFI Hackathon, open to developers of all ages, on Nov. 1-3 at San Francisco’s Terra Gallery. “We’ll have mentors onsite to jump-start the learning experience,” DiGregorio said.
Haas’ participation in blockchain week is part of the school’s ongoing commitment to blockchain research. Haas is one of 34 universities that participate in the University Blockchain Research Initiative, created by Ripple to support academic research; technical development; and innovation in blockchain, cryptocurrency, and digital payments. Through the initiative, Haas received a five-year, multi-million dollar grant to support faculty and student research, along with events like the conference and job fair, said Karin Bauer, program manager for the Berkeley Haas Blockchain Initiative. “We are able to support independent research in areas of innovation in blockchain, cryptocurrency, and finance that might not otherwise be funded,” she said.
The startup roundup series spotlights students and recent alumni who are starting a new business or enterprise.
Caldo Restaurant Technologies
Co-founders: Jose Alonso MBA 19, CEO Joshua Peterson, MS engineering 19, CTO
Caldo CEO Jose Alonso stands in front of his startup’s fast food automation station, explaining how each row of removable canisters works in tandem to fill an order. Some will hold hot food like meat and rice, while others will hold cold food like sour cream at the correct temperature, controlled by automated sensors.
“If it’s lettuce it needs to be below 40 at all times,” he said. “If it’s chicken it needs to be above 140 degrees at all times. If there’s ever a moment the food is not within regulation, the sensor makes it increase or decrease.”
Alonso and his co-founder Joshua Peterson, MS 19 (engineering), believe the machine—a high-tech assembly line for fast food and fast casual restaurants—could help owners to slash their labor costs, improve food safety, and better survive the restaurant industry’s razor-sharp margins.
“All you’ll need is to install this station in your kitchen and you’ll immediately create a better customer experience while saving on labor,” said Alonso, whose team last week moved the 150-lb automation station from a downtown Berkeley office space to a café kitchen on the Berkeley campus. “You’re also making the food safer. No one’s sneezing into your food, and you can possibly start running your business at later hours.”
The station will fix burrito bowls, salads, pastas, and poke bowls that no hand will touch during the assembly process. A system of pumps will dispense your sauce of choice with the push of a button. It (A long-term goal is to allow customers to order food directly from the machine’s screen, like a vending machine on steroids.)
Alonso came to Haas on a personal mission. A native of Puerto Rico, Alonso grew up in a family that ran restaurants in several Latin American countries, which was often difficult financially, he said.
“Despite having top quality food, my family’s restaurants struggled,” he said. “So, for me, the key question was ‘why?'”
“It takes startups to come in and disrupt”
Alonso met Peterson after he reached out to the Berkeley Engineering master’s program for help with his idea. “None of this could have been done without an engineer,” Alonso said. “I had an idea around how to make the restaurants more efficient but it was the most theoretical thing you could have imagined.”
Peterson, who grew up on the New Jersey coast working summers in a fish market, said he was drawn to Alonso’s idea for its profitability potential and for the chance to have an impact on the restaurant industry. “I worked on many engineering projects that were really cool, but you don’t really see an end goal,” he said. “I liked having a real concrete application, a tangible one, and I fell in love with the idea of the project and the company.”
The automation station, which will be leased to customers, who receive training and maintenance for the machines, could shake up the staid restaurant industry, said Rhonda Shrader, executive director of the Berkeley Haas Entrepreneurship Program (BHEP).
“Fast food places are not innovative,” she said. “Their last big innovation was a drive-through window, and that required a lot of infrastructure change. It takes startups to come in and do the disruptive innovation.” The biggest obstacle will be scaling to meet customer demand, she said. “Once people decide that they want these they’ll want them now and Caldo will have to keep up.”
Designed to be inexpensive
With an early idea for Caldo already percolating when he arrived at Haas, Alonso went through the UC Berkeley Launch accelerator program with Peterson. After conducting more than 200 interviews with restaurant managers and employees, Alonso identified labor costs as a major reason why restaurants failed.
Now, Caldo, which means “broth” in Spanish, is building its second version of the automation station, investing about $4,000 in tools and materials from a grant the team received from the Trione Student Venture Fund on the tools and steel parts.
“We’ve consciously designed this to be inexpensive because we don’t agree that a restaurant should be investing $250,000 to re-outfit its kitchen,” said Alonso, who counts Jean Prevot, director of operations at Danone Manifesto Ventures, and Megan Mokri, MBA 16, the founder of healthy vending machine maker Byte Foods, as mentors. “If you make something modular and inexpensive that works with the shy margins in food, there’s a higher chance it will work.”
Co-founders: Mallika Chawla MBA 20 Amruta Gadgil
When Mallika Chawla was applying to Haas, she found herself snacking a lot to offset deadline stress. That’s when a startup idea struck.
“As I ate, I thought, would Americans appreciate makhana?” said Chawla, MBA 20. Makhana, a favorite childhood snack in India, is a puffed and roasted water lily seed. “It’s a bit like popcorn, crunchy and salty, but rich with protein,” she said.
Chawla never fancied herself an entrepreneur. But the former Goldman Sachs economist soon found herself in her kitchen cooking the first batches of makhana for startup Eat Makhana. Joining her was her co-founder Amruta Gadgil, a buyer for Whole Foods Market. The pair, who met in 2017, made the snack using seeds imported from farmers in India.
Then they headed to a farmer’s market in Palo Alto to see if people would like it.
“During the initial days, we couldn’t keep up with the demand and always ran out,” Chawla said.
Early sales led Chawla to believe there was a healthy market for the snack, which is tasty, inexpensive, and free of gluten, soy, and nuts, essential for parents of kids with allergies.
They took their fledgling company through the UC Berkeley Launch accelerator program, conducting more than 60 interviews as they worked to understand the potential market for their product and developed a business plan. (The team was a Launch finalist.)
As the startup progressed—it’s now backed by UC Berkeley venture fund Arrow Capital and the Dorm Room Fund, which was founded by UC Berkeley alumnus Jeremy Fiance in 2016—they’ve moved cooking operations to a culinary incubator called Kitchen Town in San Mateo. They’re now selling makhana online and in 40 Bay Area natural grocery stores, adding new flavors such as chili lime to the original Himalayan pink salt makhana.
Despite early success, Chawla finds the entrepreneurial life has its challenges. “Entrepreneurship is a roller coaster ride,” she said. “There are days when I question my life choices. But support from family and friends and validation from customers makes it all real and worth it.”
Co-founders: Ludwig Schoenack, MBA 19 Nikolaus Volk Francesco Wiedemann
Ludwig Schoenack, MBA 19, co-founder of the recently launched Kyte, is hoping to make renting a car in the Bay Area as easy as ordering a pizza.
But Schoenack, who started Kyte with Nikolaus Volk and Francesco Wiedemann, doesn’t call Kyte a car rental business—because technically it’s not. Unlike Hertz or Avis, Kyte owns no vehicles. Instead, Kyte partners with car rental companies, renting and delivering their cars to customers in the Bay Area.
Kyte is designed to be easy to use. With as little as two hours’ notice, around the clock, a driver can reserve a vehicle on a smartphone or desktop app, identifying a time and place to pick up and drop off the car
When customers are finished with the car, they park it wherever they want—just like a Lime scooter or a Jump bike—and a Kyte freelance driver will be waiting to pick it up. This eliminates the headache of finding parking or returning the car to the airport or rental office, Schoenack said.
The startup makes money by renting vehicles from the big rental companies at discounted daily rates. It profits after covering the cost of vehicle delivery.
At Haas, Schoenack, who met his co-founders through mutual friends, launched the startup squad, a team of matchmakers who help connect Haas students to entrepreneurs at the UC Berkeley incubator Skydeck.
But his goal was always to meet other entrepreneurs and start his own company, which led him to start Kyte. The team was accepted at Skydeck, where it received mentorship and office space; and received a $5,000 Trione Student Venture Fund grant, allotted by the Berkeley Haas Entrepreneurship Program to early-stage startups.
Since launching, Kyte has garnered financial support from the Alchemist Accelerator, along with several angel investors who were part of—or who have invested in—Uber, Lime, Bird, and Jump. Now the team is in the process of raising a seed round and is looking to hire more people.
Schoenack said the first months of business have been encouraging, with sales increasing steadily and strong repeat business.
Most of Kyte’s customers are people who have given up owning a car, but don’t want to rent from one of the big corporate auto rental companies, Schoenack said. “The user experience is less intuitive, their technology isn’t as slick, and they don’t focus enough on the customer,” Schoenack said.
The Startup Roundup series spotlights students and alumni who are starting a new business or enterprise.
Federico Alvarez del Blanco, MBA 18
John Kim, PhD 18 (UC Berkeley/UCSF Bioengineering)
Hector Neira. PhD 18 (UC Berkeley/UCSF Bioengineering)
Robert Kim PhD candidate (UCSD MD/PhD, Neuroscience)
Busy surgical teams inadvertently leave an instrument inside a patient an estimated 1,500 times a year in the U.S. alone, according to research. Less frightening, but still problematic, is the considerable cost to hospitals that bring instruments into the hospital that are never used, but must still be sterilized or restocked—as well as delays that happen when the required instruments fail to make it to the surgical tray.
Solving those problems is the focus of Vidi, a fledgling company launched last November by Federico Alvarez del Blanco, MBA 18, and three other University of California graduates. “Tracking surgical instruments, is slow, manual, and error-prone,” Alvarez del Blanco says.
The team’s inspiration came while they were attending a workshop on visual recognition sponsored by information technology company NEC on the Cal campus. “We realized that the technology being used to develop self-driving cars could have wider applications in the medical field,” he says.
The heart of the Vidi system is a camera mounted in the operating room and connected to a computer. The system scans the surgical tray, recognizes the instruments on it, and keeps track of them. When the surgery is concluded, the system gives the team a readout of each item that was in the cart at the beginning of the procedure and lets them know if anything is missing.
The really difficult part of developing the system is training machines to correctly recognize hundreds of instruments, Alvarez del Blanco says. It’s similar to the technology self-driving cars need to recognize objects and react accordingly. That’s why Vidi team members have advanced degrees in fields such as bioengineering, neuroscience, and image recognition.
Although Vidi, which means “to see” in Latin, is very young, it has already gained a good deal of recognition. The team was awarded a Haas Dean’s Seed Fund grant last year; earned a second-place win at the University of California Big Ideas Competition in 2018; and won awards from NEC and the National Science Foundation’s I-Corps program.
Alvarez Del Blanco says his time in the MBA program helped him build the connections he needed to launch Vidi. “Haas has an interdisciplinary approach that gave me access to ideas and people across the entire University of California system,” del Blanco says.
Kourosh Zamanizadeh, BS 09, MBA 18
Ryan Alshak, BS 09 (Political Science)
If you’ve ever had dealings with a law firm, you’ve probably gotten a detailed bill with line items for everything from reviewing files to drafting documents to answering emails. While it may seem cut-and-dried, billing clients is actually a burdensome, error-prone task that costs law firms potentially billions in wasted time and lost revenue, says Kourosh Zamanizadeh, MBA 18, co-founder and COO of Ping.
A Berkeley Haas-nurtured startup, Ping uses artificial intelligence, machine learning, and cloud computing to automate legal billing. The software tracks, stores, and analyzes the time attorneys spend on a case, and then creates client-ready bills. It’s early days, but Ping has already attracted significant funding from top-tier venture capital firms (a public announcement is pending), along with a $5,000 grant from the Dean’s Seed Fund. It was named “Legal Tech Startup of the Year” in 2017 by the American Bar Association.
Ping has landed its first large client, Mishcon de Reya, a London-based law firm employing more than 800 people, says Zamanizadeh. Ping has already run a successful pilot and the firm has committed to expanding it company-wide within the year. Zamanizadeh also expects to start trials with a number of other global law firms later this year—a business expansion that will require a larger technology team.
Zamanizadeh and co-founder Ryan Alshak met while undergraduates and fraternity brothers at Cal a decade ago. “We always dreamed of starting a company together and decide to take the leap in 2016,” he says. “We both left our careers and just went for it.” The startup team has a deep lineup of relevant talent: Alshak is a former lawyer; Matt Bordas and Janesh Gupta are software engineers;Eric Zaarour is a designer; and Zamanizadeh has experience in business development and investment management.
This is the second startup for the five-member team, who made an earlier, unsuccessful attempt to build a company around an app for exchanging contacts. The team hit upon the idea of focusing on legal technology and they were accepted by Skydeck, the accelerator run by Berkeley Haas, the College of Engineering, and UC Berkeley, where they had a home base to develop their idea further.
“The startup ecosystem at Berkeley has very much matured since Ryan and I first met as undergrads. It’s truly world-class,” says Zamanizadeh, who credits Skydeck Executive Director Caroline Winnett and Ikhlaq Sidhu, chief scientist and founding director of the Sutarja Center for Entrepreneurship & Technology, for their extra support. “The environment has been very empowering and the help we’ve received couldn’t be any more genuine.”
Dustin Seely, EWMBA 18
Michael Brenndoerfer, M.Eng 18
Efficiently buying and selling bitcoins and hundreds of other cryptocurrencies is not a problem most people have. But as these hypermodern currencies become more of an investment and less of a curiosity, investors will need a simple way to manage their crypto-portfolios.
That’s the market Dustin Seely EWMBA 18, co-founder of Cryptonite, is going after. “We’re going to give investors a way to invest in the entire cryptocurrency market in one place, and do it in U.S. dollars,” he says.
Seely and co-founder Michael Brenndoerfer met in a Berkeley Haas entrepreneurship class, and then took the new, multidisciplinary “Blockchain and the Future of Technology, Business and the Law” course last spring, where they learned more about the technology underlying cryptocurrencies. Their young company was awarded a Dean’s Seed Fund grant and is expected to go live in the fall.
The cryptocurrency market is volatile and expanding, with a market cap of about $250 billion in mid-July (down from a peak of more than $800 billion in January). Although bitcoin is the most valuable and most widely known, there are now more than 1,600 cryptocurrencies sold on almost 12,000 scattered exchanges, according to CoinMarketCap. What’s more, many of those exchanges do not accept dollars, so doing business with them requires buyers to slog through complicated, multi-step trading procedures. Buying a cryptocurrency called Zilliqa, for example, means buying a bitcoin in dollars, and then using the Bitcoin to purchase the Zilliqa, Seely explains.
Cryptonite will serve as a middleman between investors and other exchanges. Account holders will be able to buy cryptos in dollars without dealing directly with other exchanges, and manage their portfolio on a mobile device, Seely says.
At the moment, cryptocurrencies are only lightly regulated, but Cryptonite is preparing for the future. “Securities regulations are coming to the space and we welcome it,” Seely says. “Regulation will give further legitimacy to the market and we can use it as a competitive advantage when we become fully compliant.”
When middle school student Pedro Petcov arrived for summer session at the Berkeley Business Academy for Youth (B-BAY) at the Haas School of Business in 2015, he was unsure about whether he wanted to pursue a career in business.
“It’s a big decision,” said Petcov, 16, now a junior at Langley High School in Fairfax County, Virginia. But after spending two weeks immersed in intense business school learning in the B-BAY program, he was sold. “I learned that business was what I really wanted to do—and I will carry that decision into college and into life.”
Petcov, who returned to B-BAY this month as a program mentor, is one of more than 1,000 middle- and high-school students who have attended sessions over the past 10 years. B-BAY’s two-week sessions are designed to give students an introduction to a rigorous business education, and along the way, experience life as a Berkeley Haas student.
“Dare to dream big”
To celebrate its 10th anniversary, B-BAY hosted an event June 23 at Chou Hall, featuring a welcome (and a guitar performance) from Dean Richard Lyons, a silent auction, and the surprise honoring of Haas lecturer Frank Schultz, who made significant contributions to B-BAY over the past decade.
B-BAY was first founded for middle school students in 2008, and in 2013 began offering a residential session to high school students. It also opened the program to international students for the first time. Tuition from B-BAY partially supports Boost@BerkeleyHaas, a program which equips under-resourced students with the skills and the passion “to dare to dream big,” said Olive Davis, who created B-BAY and serves as director.
“We’re excited to celebrate all the great work we’ve been able to accomplish over the past decade,” Davis said. “We’ve watched so many students from cities in our backyard and from around the globe come to campus and blossom during their time here, turning into better thinkers and better leaders, ready to take the next step academically.”
“This program offers such a unique opportunity for students to spread their wings and experience everything from entrepreneurship to critical thinking in a rigorous business school environment,” said Berkeley Haas Dean Rich Lyons. “We’re looking forward to what the next 10 years bring for this successful program.”
The importance of teamwork
Each year, the program focuses on an area of concern to the business world. This summer, the high school students in the critical thinking class will study issues around credit cards, blockchain technology, and cryptocurrencies such as Bitcoin. One team of five students will explore and make recommendations for regulation and governance of these new technologies, while others will develop business cases for their use, Davis said.
Business cases are a big part of the B-BAY curriculum, which is designed to foster the habits of critical thinking required for success as an entrepreneur. For the cases, students divide into teams of five, taking on roles such as CEO, CFO, COO, or the head of sales and marketing. Each team develops a business plan for a new company, and much like students in business school, conduct a “SWOT”—strengths, weakness, opportunities, and threats—analysis of the proposed venture.
Catherine Tang, a senior at San Marino High School in California, who attended the program last year, said her biggest takeaway was understanding the importance of teamwork. “With our big project (on security and fraud prevention) it was really important to have everyone contributing to the group,” she said. “With everyone working together toward the same goal it really worked.”
Petcov said his positive experience with the program—which teaches sessions in everything from leadership, corporate responsibility, and accounting to marketing, finance, and public speaking—led him to return this year as a mentor helping with everything from organizing icebreakers for students to assisting them with their business cases.
“When I interacted with the peer mentors during my program I immediately said I wanted to come back and do this to share my own knowledge and passion,” he said.
A University of California, Berkeley, Haas School of Business team has taken the Golden Shovel trophy back from Stanford Graduate School of Business with an innovative plan for Bay Area Rapid Transit’s (BART’s) Warm Springs/South Fremont station property.
The Golden Shovel is a semester-long real estate competition between students at Berkeley Haas and Stanford GSB, sponsored by the National Association of Industrial and Office Properties (NAIOP). During the competition, each team is assigned the same project and must propose the best use, design, financing, and marketing of a commercial real estate project.
For the 2018 challenge, the teams were tasked with drafting a plan to convert BART’s 2,000-space parking lot into 1.8 million square feet of mixed-use development while working within Fremont’s zoning rules and BART’s development guidelines. Teams made their final presentations on April 25.
The Haas team included Breck Baird, EWMBA 18, Robert Kelly, EWMBA 20; Matthew Hines, MBA 19; Peter Fritz, EWMBA 19; and Mark Trainer, Master of City Planning (MCP) 19.
Top honors in the friendly competition have gone back and forth since its inception 29 years ago, but Haas has now won 16 times compared to Stanford’s 13 victories. The $2,000 prize goes to charity, but the winner gets bragging rights, always a good thing when Cal meets Stanford, said Fritz, vice president of the Berkeley Real Estate Club.
The winning solution included office development, a parking structure, and facilities for companies conducting research and development, particularly in life sciences and autonomous vehicles. In the center of the development, the team envisioned a community hub that could include space for community and educational services. “We focused on serving the community and attracting startups and entrepreneurs through catalysts, such as a medical device incubator,” Fritz said.
Cliff Nguyen, Fremont’s urban initiatives manager, praised the Haas team’s proposal in a blog post, writing that “Cal’s unique vision for the site and creative financing approach prevailed.”
Finding a way to pay for a parking structure estimated to cost $70 million was one of the project’s tougher challenges. The team’s solution involved the use of two state programs that would allow the city to issue bonds and pay for them with the tax revenue generated by the project, said team member Robert Kelly, EWMBA 20. “The main key is that the financing is entirely generated by the project, and does not require the city or BART to take from their general funds,” he said.
Identifying the market opportunity for development within the site was another difficult problem. The team spoke with more than 60 people, including real estate developers and brokers who specialize in the area, land use attorneys, and community college representatives, said Hines, president of the Berkeley Real Estate Club.
“Having a deep understanding of the market, and going the extra mile to obtain signed letters of interest (from potential catalyst tenants) were keys,” he said.
Development of a valuable chunk of real estate in the heart of a city is serious business, but the team managed to be a bit lighthearted with the tagline for its proposal: “Make Warm Springs hot again!”
Judges at the 2018 UC Berkeley LAUNCH competition last Thursday awarded top honors to a team led by a College of Engineering student with a big data startup.
This year marked the 20th anniversary of LAUNCH, UC Berkeley’s startup accelerator created by and for UC Berkeley founders.
Every year, startups complete three months of mentoring and product development designed to transform early stage startups into fundable companies. The program culminates with a pitch competition.
Judges winnowed this year’s crop of 23 startups to 10 finalists. Their founders had just five minutes each to make a pitch touting their business plans, as the nearly 400 people who filled Andersen Auditorium watched, ate pizza, and cheered on their favorites.
This year’s finalists represented a wide swath of the business world, from farming to medicine and emerging technologies like machine learning. “The best part for me was seeing our founders crush their presentations,” said Christian Keil, MBA 19, the co-chair of LAUNCH. “They’ve come so far in the three months of our program—so many pivots made, interviews completed, storms weathered. To see them shine in front of investors and the general public was amazing” Companies that have completed the intensive LAUNCH program over the last three years have raised more than $36 million in venture funding, Keil said.
LAUNCH teams from Haas and beyond
Haas-founded finalist teams included, Chema González-Garilleti, MBA 19, who leads Collaboratorium, an enterprise decision-making Software-as-a-Service product; Shom Gupta, MBA 19, of NearFarms, which is creating a marketplace linking consumers and local farmers; and Jessica Eting and Pedro Moura, EWMBA 18, who lead Flourish, a personal finance tool that uses games and rewards to help people establish savings habits and achieve financial security.
Data Agora, winner of this year’s $25,000 grand prize, is building a secure, online marketplace for buyers and sellers of big data.
“Acquiring high-quality data is very difficult,” says founder and CEO Ashwinee Panda, a sophomore in the College of Engineering. Unlike data brokers, the usual avenue for the commercial exchange of data, Data Agora’s systems never see the data. Instead the company uses machine learning to facilitate the transaction and avoid the risk of data breaches and the loss of privacy, Panda says.
The $10,000 second-place prize went to Jobwell, a tool that helps organize job searches and provides virtual coaching for users. The company was founded by former LegalZoom employees; May Lu, a Wharton MBA, and Daniel Kent, now a graduate student at UC Berkeley’s School of Information.
Third-place winner of $1,000 was Medinas Health, founded as a market for surplus medical supplies by CEO Chloe Alpert. Medinas Health handles items as small as a box of sutures, worth about $300, or as large as a C-Arm, a $100,000 device that holds medical equipment in place.
The company acts as a broker, and arranges inspections of critical equipment, Alpert says.
Winning recognition from Y Combinator, the prestigious Silicon Valley startup incubator, isn’t easy. Overall, less than 3 percent of the companies that apply are accepted each round. Since 2005, Y Combinator has funded more than 1,588 startups, including Airbnb, Dropbox, and Weebly.
Two Haas companies, Onederful and Players’ Lounge, made it into this year’s winter Y Combinator cohort, each receiving $120,000 and an opportunity to work closely with world-class mentors to grow their businesses and refine their investor pitches.
“Teams, like Onederful and Players’ Lounge, who dig in and do the hard work are natural fits for Y Combinator,” said Rhonda Shrader, executive director of the Berkeley Haas Entrepreneurship Program. “They’re great founders, focusing on the fundamentals.”
Here’s the skinny on the two startups.
Karen Yee Taylor, EWMBA 19, co-founder & CEO
It all started with a toothache.
Karen Yee Taylor, EWMBA 19, found a dentist, went in for a 10-minute appointment, “and it turned out it wasn’t a big deal,” she said.
A week later, she received a huge bill “because the office didn’t verify my insurance and I actually wasn’t covered for this check-up.”
Since her father is a dentist, Yee Taylor suspected that something wasn’t right. “I decided to dig in, and what I discovered was a massive problem in the industry. Sorting out insurance benefits by making phone calls and faxing documents back and forth is a big waste of time and money.”
Yee Taylor and her brother, Alex Yee, are now building Onederful, a web portal that allows a dental office to verify a patient’s insurance information in seconds. The information is standardized across all the insurance carriers so offices can quickly find what they are looking for. The site is currently being tested by about 50 dental practices.
Before settling on a business plan a year ago, Yee Taylor and her brother interviewed dozens of dentists and their staffs. They found that the routine process of checking on a patient’s insurance benefits could take up to 30 minutes per patient, and reduce revenue by approximately 7 percent due to denied claims caused by eligibility errors.
To solve the problem, Onederful connected to 240 dental insurance carriers. Subscribers to its service can go to Onederful’s secure web site, type in a patient’s information and get access to their insurance plans in a standardized way.
Because patients’ dental records and related insurance information are regulated under federal HIPAA rules mandating high levels of privacy and security, much of the $120,000 awarded by Y Combinator to Onederful was used toward secure software and services, Yee Taylor says.
The team is using the remainder to pay living expenses while they work to launch the company.
They head to Y Combinator headquarters once a week to meet with mentors and work through the company’s growing pains.
“We’re meeting with great people and getting great advice,” Yee Taylor says.
Yee Taylor said a course called “Innovative Leadership Through Design” with Haas Lecturer Angèle Beausoleil helped shift her focus to users and their problems first. “It’s been the approach I take any time I question what to build or tackle next,” she said.
Mark Murphy, MBA 17, co-founder and CFO
As an undergraduate student, Mark Murphy played multiplayer online soccer every day with his varsity soccer teammates Austin Woolridge and Zach Dixon.
Then the group graduated.
“Playing was something that we found increasingly hard to do on a consistent basis after school and it was something we really missed,” Murphy said.
As with so many inventions that fill a need, the team came up with the idea for Players’ Lounge, a video game social startup for Xbox and PlayStation users. The site hosts head-to-head matches for money, along with free tournaments for cash prizes for games including FIFA (soccer), Madden (football), NBA2K (basketball), MLB: The Show (baseball), NHL (hockey), and Call of Duty.
Players can be matched with an opponent who wants to bet, play each other online on Xbox or PS4 for no money, or join a tournament to win money.
The company is growing quickly. Both revenue and visitors to video game tournament host Players’ Lounge have roughly tripled in the last year, Murphy said.
The surge in performance has largely been driven by the video game stars, called streamers, who are paid to interact with the Players’ Lounge audience, Murphy said.
At Haas, Muphy took his idea for Players’ Lounge through the Lean Launchpad process, a rigorous methodology that helps students discover early on if a market demand exists for a product of service.
Murphy and his team conducted 50 to 60 interviews with potential customers.
The team’s original plan was to host live game-oriented events. (The team met Dan Delaney, their current CTO, at their first event.) But feedback Murphy received during the UC Berkeley LAUNCH startup boot camp program convinced him that building an online gaming platform and community had a better chance of success.
Now, the team is using the Y Combinator seed funding to help pay the streamers and fund a marketing campaign.
Murphy said the intensive mentoring provided by LAUNCH and Y Combinator has proved invaluable. (Four other LAUNCH teams —Xendit, Lendsnap, Innovein, and Dost—were also past Y Combinator startups.)
“We’re already a lot more focused,” Murphy said. “If you can’t grow with that kind of help, you probably have a bad business model.”
Since Adj. Prof. Henry Chesbrough wrote his pioneering 2003 book, Open Innovation: The New Imperative for Creating and Profiting from Technology, the concept has become a mainstay of corporate strategists and product developers around the world.
Next month, leading thinkers will gather in San Francisco to discuss the latest trends—including the rise of machine learning and the development of new business models to enhance collaborative strategies—at the 4th Annual World Open Innovation Conference.
Open innovation calls for companies to make much greater use of external ideas and technologies in their own business and, in turn, give outsiders to their unused internal ideas.
Keynote speakers at the conference include:
David J. Teece, director of the Tusher Center for the Management of Intellectual Capital at Berkeley Haas
Arati Prabhakar, former director, Defense Advanced Research Projects Agency (DARPA)
William Ruh, SVP & chief digital officer for GE, and CEO of GE Digital
Thomas Kalil, former deputy director of policy, The White House Office of Science & Technology Policy
Chesbrough, faculty director of the Garwood Center for Corporate Innovation, will chair the event, to be held Dec. 13-15 at the San Francisco Airport Marriott Waterfront.
We asked Chesbrough a few questions in preparation for the conference.
Who should attend?
Anybody who is interested in growth should attend. You’ll see new models of growth that leverage more knowledge from external resources, making innovation faster and more efficient. We expect managers from Europe, Japan, China, and India, and of course, many American companies.
Who will be speaking at the conference?
The mix of speakers is not what you’d typically see at most conferences. The chief digital officer of GE will discuss the digital transformation of his company, and keynote speakers who headed DARPA and held a leading position in the White House Office of Technology and Science will explain how the principles of open innovation can be shared with governments and public entities. David Teece, director of UC Berkeley’s Tusher Center for the Management of Intellectual Capital, will tie these themes together and explain why competitive advantage in the 21st century will be based on the ability to mobilize external resources.
What will this year’s conference cover?
We’ll focus on lessons learned by state, local, and national governments that have used open innovation to inform and strengthen the policy-making process. Traditionally the policy world talks to itself, or uses consultants to push ideas out to the world. But the world can participate directly in the formation of the policies and give feedback on execution. We will also see the latest academic research on open innovation, and experience challenges from leading companies who are trying to make it work in practice.
Can you provide a memorable insight from an earlier conference?
There’s one particular story from NASA. With budgets shrinking and a trip to Mars on the drawing board, NASA was turning to open innovation to solve the immense problems of interplanetary travel. The agency even crowdsourced the design for a new space suit. But, as attendees at the World Open Innovation Conference in 2014 learned, the new approach to innovation unsettled long-time employees of the space agency. Scientists at NASA went through an identity crisis. They asked, “When we go outside to ask citizens for their input what happens to me?” That’s just one example of a challenge in adapting to open innovation.
What are some trends that you are watching in open innovation?
Open innovation is moving into the realm of artificial intelligence. Machine learning and deep learning involve training machines with sets of data, and the more data you have the better the training. Open innovation holds that it is quite possible to aggregate disparate data sources from multiple, collaborating organizations.
Sharing data and sharing services creates value and new sources of revenue. But opening a business to outside partners requires the development of new business models. Firms need to find ways to manage the move to the new digital technologies that are reshaping the economy.
Why does open innovation matter as much today as it did when you developed the paradigm?
There is so much useful knowledge in so many places that it is a mistake to generate and protect your own knowledge to the exclusion of outside sources. It is much smarter to take advantage of that external knowledge and then add the pieces of internal knowledge that brings it to life and connects it together to deliver business value.
It’s easy enough to find a computer science class that covers the bits and bytes behind blockchain—the global digital ledger that’s linked and secured using cryptography. More difficult is finding a curriculum that tackles the potentially disruptive business, legal, and regulatory implications of the complex new technology.
That’s about to change, as Berkeley Haas in spring 2018 offers a cross-listed class to business, engineering and law students. Called “Blockchain and the Future of Technology, Business, and Law,” the new course will provide an overview of the technology behind blockchain and explore the huge range of current and potential real-world applications.
“Blockchain is one of the most significant technologies to impact business in many years, but there’s a lack of understanding about what it means to business and law,” said Haas Lecturer Greg La Blanc. “Engineering students think that money simply grows on bits, but have no idea what the business model is. Law and business students are confused about the technology.
The course is limited to 60 students, 20 each from Haas, Berkeley Engineering, and Berkeley Law. They’ll work in mixed teams of six to produce a proposal for a workable blockchain-related business plan by semester’s end.
What is blockchain?
Blockchain is a decentralized and encrypted method of tracking digital assets. It’s designed to operate without any central company or government in charge, so that no single party can change records they didn’t create. Blockchain is often associated with digital currencies such as Bitcoin—but the technology covers far wider territory. Blockchains are being used to do everything from protecting digital identities in Estonia to removing contaminated turkeys from the supply chain in Texas—and it’s become a trendy investment in Silicon Valley.
La Blanc, who teaches finance and strategy at Haas, is the course co-founder, along with Adam Sterling, executive director of the law school’s Berkeley Center for Law, Business and the Economy, and Engineering Professor Dawn Song, a MacArthur Foundation Fellow. All three will teach during throughout the course, along with engineering post-doc Raymond Cheng.
Sterling, JD/MBA 13, who enrolled in La Blanc’s finance class as a Berkeley MBA student, said the two have stayed in touch, working on various projects since he left. The new course came out of a meeting the two held with Song. “We saw so much overlap in what we were doing,” Sterling said.
La Blanc said the 15-week course will include lectures on topics such as the history of money and currency, the founding of Bitcoin, and the stories behind the industry experts who are building cryptocurrency products. The course will include a variety of guest speakers.
Pitching to VCs
By the end of the course, each student team will create a blockchain-related business plan “that is technically feasible and regulatory compliant,” Sterling said. Members of the VC community will judge the students’ pitch decks and their computer code, as well as their legal memos.
Interest in the course and in blockchain across campus is strong. Blockchain at Berkeley, founded a year ago, now has 100 members and more than 1,600 people participating in the club’s events and activities, says Ashley Lannquist, MBA 18, one of the group’s consulting managers.
“Students see this as a very impactful emerging technology that will play large role in the future, and they want to understand it and effectively participate,” Lannquist says.
“Blockchain does have the potential to be a really disruptive technology for many industries,” Sterling said. “There’s a lot of excitement around the early applications, but we’re especially excited for the long-term implications and that’s what we want to equip our students to understand.”
With freedom of expression being challenged around the world—and in clashes on the UC Berkeley campus—is there more that the technology industry can do to protect free speech and other human rights?
The answer to that question was a resounding “yes,” as the United Nation’s High Commissioner for Human Rights, Zeid Ra’ad Al Hussein, and Microsoft President Brad Smith spoke last Thursday at a Berkeley-Haas Dean’s Speaker Series. The panel was co-sponsored by the Berkeley-Haas Center for Responsible Business’ Peterson Speaker Series, as well as the Human Rights Center at Berkeley Law.
The panelists agreed that technology allows for better tracking of abuses around the world, while also enabling better communication with political dissenters—and that technology companies themselves have an important role to play.
Smith reiterated Microsoft’s pledge to help the Human Rights Commission strengthen its work by embarking on a five-year, $5 million partnership. “We are a company that believes that a better-funded, more diversely financed UN Human Rights Commission will do more to protect people—not just their right to speak but even their ability to stay alive,” he said.
More diverse funding, Smith said, would serve to insulate the UN commission from threats by governments to reduce their contributions when the UN’s contribution is contrary to their own. “Governments want the High Commissioner to be vocal when he is poking other governments, but are less enthusiastic when he is poking them,” said Smith, in an apparent reference to President Donald Trump’s recent attacks on the UN.
Free speech threat on rise
Haas Dean Rich Lyons framed the discussion—which was moderated by Alexa Koenig, executive director of the Human Rights Center at Berkeley Law—by noting that some 75 percent of governments around the world restrict freedom of expression, according to Amnesty International. Threats to a free press are also on the rise, he said.
“You may be tempted to think this is a ‘them-not-us’ situation, but the US ranks number 43 on the World Press Freedom Index, ranking just below the West African country Burkina Faso,” he said. The US had a higher ranking last year and “statements such as labeling the press as counter to American interests will probably weaken our standing further.”
Although Americans overwhelmingly support the right to free speech, that doesn’t translate into support for hate speech, he said. “Recent events at Charlottesville have brought hate speech to the forefront of our nation’s conscience and reignited calls for censorship.”
Balancing two conflicting priorities “requires fine-tuned thinking,” said Zeid Ra’ad Al Hussein, the sixth UN High Commissioner for Human Rights and the first Muslim to hold the position. “With internet freedom on the decline we must wage a bare-knuckles fight for rights. We have to become human-rights brawlers.”
“We need transparency”
The high commissioner said Microsoft’s technology has improved the commission’s ability to communicate with dissenters it could not normally reach, and to sift through data on alleged ethnic cleansing in Myanmar. It now has the ability to analyze video images for evidence and is developing a dashboard to give commission staffers a real-time snapshot of human rights around the world.
While calling on technology companies to do more to further human rights, the high commissioner warned that companies like Facebook may not be adhering to standards developed by the UN.
“We need transparency. We need to know what criteria they are using. If they are going to police these issues, they have to police and judge according to international standards,” he said.
Indeed, Facebook has been criticized for Russia’s use of the social media platform to buy political ads and use fake accounts to target users with messages designed to inflame religious and racial tensions. The company recently agreed to turn over to Congressional investigators more than 3,000 ads paid for by entities linked to Russia.
Universities, too, have a role in protecting free speech. But education is only part of the answer, the high commissioner said. Noting that many of the top Nazi Party members were highly educated, the high commissioner stressed that what the world needs most is educated people with empathy and compassion.
He referenced Charlie Chaplin’s character in The Great Dictator, who said: “More than cleverness, we need kindness and gentleness.”
Watch the full video:
Top photo (L-R) Alexa Koenig, executive director of the Human Rights Center at Berkeley Law, Zeid Ra’ad Al Hussein, UN High Commissioner for Human Rights, and Microsoft President Brad Smith. All photos: Manali Sibthorpe
The startup roundup series spotlights students and alumni who are starting a new business or enterprise.
Co-founders: Sal Parsa, MBA 18 Joel Simonoff, BS 19 Matthew Vavricek
Nearly everyone who spends much time on social media has probably posted or tweeted something they wish they hadn’t. But the Internet has a long memory, and an ill-conceived post can damage chances of landing a new job or being admitted to a prestigious university many years later.
Sal Parsa, MBA 18, who himself admits to occasional forehead-slaps over regrettable social media posts, thinks there’s a business in cleaning up the detritus of online foolishness. “We noticed how many admissions officers and hiring officials were screening the social media posts of applicants,” he says. “We were surprised that there was no smart and easy system to help clean up (those posts) and build a better personal brand.”
As Parsa thought about starting a business, he logged onto Bearfounders.com, a service to connect UC Berkeley students and alumni looking for like-minded, would-be entrepreneurs. He met Joel Simonoff, a Berkeley engineering undergraduate, who then introduced him to Matthew Vavricek, a Nebraska high school student. Simonoff and Vavricek had met while working on a startup that was designing exoskeletons for kids with cerebral palsy.
The three formed a venture called Social Filter, built around software that uses machine learning and natural language processing to analyze social media posts and flag potentially harmful content. Users are notified of suspect content and can then delete it via an online dashboard. For now, the software scans Facebook and Twitter posts, but they are looking to expand to other social media sites and add image scanning capabilities in the coming months.
The site already has about 1,700 users, including many Haas students who have given the company a good deal of helpful feedback, says Parsa, a recipient of a Haas Jack Larson scholarship. The company incorporated in August with the help of the Berkeley-Haas Entrepreneurship Program (BHEP) and UC Berkeley Law.
Co-founders: Leon Rodriguez, MBA 18 Diego Rodriguez
With a father and grandfather who practiced medicine, brothers Diego and Leon Rodriguez, MBA 18, always suspected they would return to their roots.
And they have. The brothers, alongside several colleagues, have developed an online solution to bring low-cost health care to patients in the US and Mexico who have difficulty traveling to a doctor’s office.
NecesitoDoc, Spanish for “I need a doc,” uses Internet video to connect patients to a primary care doctor or nutrition physician for about $8 a consult. In Mexico, where the platform is already in operation, the company uses a business-to-business model, contracting with companies to offer the service as a benefit to employees.
The model in the US, where licensing regulations and high fees make it impractical to offer telemedicine, is consumer-focused and limited in scope when compared to the Mexico solution, Leon Rodriguez said. NecesitoDoc will connect patients—the target audience is the undocumented Spanish-speaking community—with a doctor in Mexico who will conduct a screening and steer them to a licensed provider in their area. However, they cannot order treatment or provide prescriptions.
NecesitoDoc is in conversations with different US-based companies that offer services to the Hispanic community, which will help provide the company with a local presence, Leon says.
In Mexico, NecesitoDec offers a web-based solution that works on both smartphones and personal computers. In the US, Leon said the company is working on developing a customized solution that addresses the main concerns of the US immigrant community.
NecesitoDoc was nurtured in the UC Berkeley LAUNCH program, and Leon was awarded $5,000 from the Dean’s Startup Seed Fund. He was also a Hansoo Lee fellow and received a $70,000 grant from the Mexican government, which helped launch the young company.
Co-founders: Alex Zekoff, MBA 17 Clay Anthony, MBA 17 Gagan Mac, EWMBA 17 Juan Ordonez, MS 17 (Engineering)
Advertising is the lifeblood of the web, but as more and more people use ad blockers or simply tune out commercial messages, advertisers are looking for new ways to make their message heard. One tactic has been paid “influencers,” people who post or tweet rave reviews and friendly blogs touting a company’s products.
But how does an advertiser to know if its influencers are really influencing anyone? What’s the ROI?
Enter LikeWallet, a Haas startup developing an analytics tool to measure the performance and ROI of each post by an influencer. By tracking the performance of posts and tweets, the advertiser will be able to tell if that social media message resulted in a consumer making an online purchase, and how many “likes” and comments it garnered. The software will also analyze and report on the sentiments those comments reveal.
LikeWallet started life as Pinpoint, a service to provide tailored, peer-to-peer recommendations for travelers and tourists. But as the team went through the UC Berkeley Lean Launchpad class, conducting more than 150 interviews, it became clear the idea was a non-starter, says co-founder Alex Zekoff, MBA 17. “What we were offering simply wasn’t unique,” he says.
But the idea–that online recommendations from friends and people they respect motivates consumers to buy–stuck. That insight became even more clear when Zekoff’s brother created an Instagram account for his dog and was soon rewarded with more than 20,000 followers and offers from advertisers to use that account in advertising.
“Big companies hire stars, people with hundreds of thousands or even millions of followers to tweet and post for them. But influencers with much smaller followings—1,000 to 100,000—can make a difference as well, and those are the people that we as cofounders believe will have a greater impact for business,” Zekoff says.
The Dean’s Startup Seed Fund helped launch LikeWallet with a grant of $5,000 and free office space, but most of the funding is coming from the founders themselves.
British software developer Symbian beat Apple to market by five years by introducing an operating system for smartphones in 2002. Long before the first iPhone, Symbian built a network of partners and suppliers around its operating system that included the world’s largest maker of cell phones. By 2007, Symbian boasted a 63 percent market share.
Symbian appeared to have taken its strategy straight out of the open innovation playbook, a business strategy developed by Haas Adjunct Professor Henry Chesbrough, which asserts that “a company should make greater use of external ideas in its business and allow its own ideas to go out to others to use in their businesses.”
When multiple firms in a partnership cooperate to create value for customers, the partnerships succeed, argue open innovation theorists. That’s exactly what Symbian and its partners attempted to do. Yet by the end of 2014, the Symbian operating system had become so marginal that when IDG, a market research company, reported on the mobile OS market, it lumped it into the “other” category, with a share less of than half of one percent and the company itself no longer existed.
The story of the company’s precipitous fall is an important chapter in New Frontiers in Open Innovation (Oxford Press, 2014), a collection of analytical papers published late last year. It was edited by Wim Vanhaverbeke of the University of Hasselt, Joel West of the Keck Graduate Institute, and Chesbrough, who is also director of the Garwood Center for Corporate Innovation at Berkeley-Haas.
Chesbrough and his co-authors extend their analysis of open innovation to include socially focused non-profits, high-tech “platform” companies like Symbian, and the difficulties businesses have in capitalizing on the fruits of internal research and development that fall outside their core competencies.
In large part, Symbian’s failure can be blamed on a cumbersome network of customers (handset makers), who were also investors that hindered its battle for smartphone supremacy with Apple and Google, writes West.
Open Social Innovation
Students of management tend to focus upon the private benefits of innovation to consumers, producers, and investors while treating the overall social benefit “as an endnote for our papers,” notes Chesbrough in an essay written with Alberto Di Minin, a research fellow with the Berkeley Roundtable on the International Economy. Social change, not the simpler equation of profit and loss, is the yardstick by which social innovators need to measure their efforts, they write.
Emergency, an Italian non-profit dedicated to delivering top-quality emergency medicine in conflict zones, has had notable success operating in areas too perilous for most NGOs. In Afghanistan, for example, it operates three surgical centers, a maternity clinic, a network of 30 first-aid posts, and has performed more than 17,000 surgeries.
The 20-year-old organization exemplifies what the authors call an “inside-out, or outbound” open innovation strategy in which knowledge flows outward from an organization, as well as the better known “in-bound” open innovation strategy in which firms leverage external knowledge and technology to accelerate internal innovation.
One core principal of inbound open innovation is embodied in the expression “not all the smart people work for you,” write Chesbrough and Di Minin. In order to provide medical treatment to those in need, Emergency has to identify and rely on local suppliers and staff to support its activities, is sensitive to local customs and sensibilities, and is scrupulous about not taking sides in conflicts.
On the outbound side, Emergency’s exit strategy is to become redundant by transferring know-how and best practices to local institutions that can then assume its role.
When Chesbrough published his first work on open innovation in 2003, he proposed a number of “erosion factors,” such as increased mobility of workers and growing access to venture capital by startups that “undercut the logic of the prevailing closed innovation model.” A dozen years later, the rise of the Internet and social media have undercut that logic even further, as companies have access to more and better information from sources across the globe.
The new volume speaks to those changes and points to new areas of future research into open innovation.
In his new book, Haas Adjunct Professor Henry Chesbrough and his co-authors extend their analysis of open innovation to include socially focused non-profits, high-tech “platform” companies like Symbian, and the difficulties businesses have in capitalizing on the fruits of internal research and development that fall outside their core competencies.
It’s not much harder or more expensive to send a tweet or a Facebook post to hundreds or even thousands of people than to just a handful. So you’d think that the ease of communicating with lots of people via social networks would result in more and more people sharing their thoughts, political views, and cat videos.
But that’s not the case, says Associate Professor Zsolt Katona at UC Berkeley’s Haas School of Business (pictured, left). The flood of tweets and posts washing across cyberspace has created a huge imbalance in the number of people creating content and the number of people who receive it. That imbalance stems from some content creators giving up on actively contributing to social networks, while others choose to send out more and more messages to users in an effort to be noticed.
In a new research paper, Competing for Attention in Social Communication Markets, Katona and co-author Ganesh Iyer, Edgar F. Kaiser Chair in Business Administration at Berkeley-Haas, (pictured, right) suggest a seemingly counter-intuitive thesis: The cheaper and easier it becomes to reach large numbers of people via social media, the fewer “content creators” choose to participate and the more cluttered the networks become. If it were as difficult to post messages to large numbers of people as it was just a few years ago – before the rise of mobile messaging apps — more users would create content.
Although more and more people are participating in social networking, a smaller percentage of users are actively creating and sharing content. Industry reports estimate that just 10 percent of Twitter users broadcast 90 percent of the network’s tweets, while only a tiny fraction of the 55 million users who blog post daily, notes Katona.
The relative scarcity of message creators has been noticed before. But what hasn’t been understood are the mechanisms responsible for the imbalance of senders and receivers and the implications for the social networking industry.
The research suggests that social networking is a bit like a market: People who create and send content are investing effort to win customers–in this case the “receivers” who will view their content.
But unlike businesses that use social networking as a marketing tool, individual senders aren’t looking for a definable economic reward. They want status, or the satisfaction of being heard. Instead of actual sales, senders measure their payoff by the number of receivers who listen to them, while the effort required to reach them is the cost of sales, say the researchers.
Social distance between senders and receivers largely determines the effort required to reach them. If a social network is small, and each sender targets just a few receivers, there’s not much competition for attention; receivers aren’t getting many messages. On the other hand, senders aren’t getting a large payoff so they only make a minimal effort to be heard.
That changes when senders attempt to increase their payoff by targeting people who are more socially distant. Receivers, who once were the recipient of messages from only a few senders, are now targeted by many senders, leading to increased competition for attention. And the more distant the receiver, the harder it is for the sender to craft relevant messages, say the researchers.
As competition grows, some senders decide the payoff isn’t worth the trouble and drop out, and others decide not to enter the market, which explains why the proportion of senders to receivers is so low. It may also explain why some users turn away from popular social networks and are looking for more intimate places to share items with just a handful of people, say the researchers.
Facebook recognized this trend and modified its algorithms to present users with more news from people who are close to them. There have even been attempts to create new, more intimate social networks from scratch, although they have so far met with limited success.
When messaging costs go down, senders decide they can target more and more people and compete with other senders by sending messages more frequently. “But what is interesting is senders are worse off by making this choice,” say Iyer and Katona. Too much messaging creates clutter and lowers payoffs for everyone in the market.
When the cost and difficulty of messaging increases, senders have less incentive to compete by creating a flood of messages. That, in turn, makes it more likely that users will read a sender’s message, meaning his or her payoff is higher and senders are more likely to stay in the network.
The paper’s conclusions are based on mathematical modeling of social networking behavior along with an analysis of empirical data from a 2011 study of real-world social networks in a French primary school. It will be published in Management Science later this year.
It’s not much harder or more expensive to send a tweet or a Facebook post to hundreds or even thousands of people than to just a handful. So you’d think that the ease of communicating with lots of people via social networks would result in more and more people sharing their thoughts, political views, and cat videos.
But that’s not the case, say Associate Prof. Zsolt Katona and Prof. Ganesh Iyer at UC Berkeley’s Haas School of Business.