From glass boxes to black boxes

I wrote about how platforms are glass box organisations, given their network effects. But there are a lot of black boxes out there. In the digital platform space, there are a lot of firms that operate as black boxes. The glass box metaphor was heavily drawn on the internal culture of the firm, that is, what the employees of the firms do. This post is about what the employees don’t do.

Before I elaborate, let me highlight the work of one of my doctoral students, Sandeep Lakshmipathy. He elucidates four primary value creation opportunities of multi-sided platforms: Discovery, matching, transaction, and evaluation. In short, discovery platforms help reduce the search costs for the sides of the platform (think Craigslist), matching platforms use filters and algorithms to ensure that the preferences of both sides are catered to while delivering a match (think Tinder), transaction platforms reduce the frictions and transaction costs in interacting with the other sides of the platform (think MasterCard), and evaluation platform enable ratings/ reviews/ recommendations/ feedback of the service (think Yelp). Sure, some platforms provide multiple value, like Uber provides discovery, transaction, and evaluation; whereas Airbnb provides all four.

Our focus today is just matching platforms, and how they create more and more opaque black boxes.

Matching platforms

In one of our conversations about the difference between discovery and matching platforms, Sandeep quipped about the difference between choosing a tomato sauce on an e-commerce platform and choosing a partner on Tinder. While it is sufficient for me to like the tomato sauce, it is not important for the tomato sauce to like me! Unlike this, in a matching platform like Tinder, it is imperative for both sides to have liked each other. Here is where the algorithms kick in. Magic! Matching algorithms.

Matching algorithms are technically taught in graph theory. Graph theorists discuss two types of matching – common vertex matching and bipartite matching. Common vertex matching is used to match, for instance, people with similar interests, like students in a class interested in a specific project. On the other hand, bipartite matching is used to match two subsets with each other, like buyers and sellers in an e-commerce platform. There are various algorithms used by graph theorists, including Hungarian maximum matching algorithm, Edmond’s matching algorithm, and the Hopcroft-Karp algorithm. The specificity of the algorithms notwithstanding, each of these algorithms work on the basis of three things – the specific preferences as limiting criteria, the minimum matches to be returned, and the maximum matches possible.

Imagine when you search for books to read on a peer-to-peer book-reading platform, and based on your preferences, you get exactly one recommendation. Just not sufficient enough choice, right? On the other hand, irrespective of the filters you add, if the recommendations do not change (the same titles keep appearing) and you get a recommendation of 5632 books, you feel overwhelmed. Both sides of the matching algorithms, there is a problem – of underwhelming and overwhelming choice. It is exactly to solve these problems that matching algorithms collect enough data from the users.

Some algorithms start with providing random matches, and based on the expressed user preferences, gradually mature their matching. Some others start at one extreme – like the shopping assistant in a mom-n-pop retail store. Once she’s estimated your broad preferences and budgets, she is most likely to start with showing you options very close to your budget. Pretty much like the default sorting algorithm (lowest price first) in the case of travel/ hotel aggregation platforms. Again, the platforms “learn” based on your expressed preferences.

Expressed preferences to profiling

Now, how do these platforms learn, and what do they learn about your preferences is the black box. Based on a few expressed preferences, these matching algorithms may end up profiling the user, and start providing more and more matches based on that specific profile. Sometimes, these preferences may be specific to a context – like me searching for a business class air ticket (when the client has agreed to pay – I travel economy otherwise!). The algorithm has no way of separating out such preferences without access to a large number and variety of such searches. And such preference-based profiling is easy.

Have you wondered why you get “more relevant” advertisements on a Google search results page than on YouTube? Both owned by the same firm, and possibly can share the matching algorithms. However, the way one could profile search users based on their text inputs and matching them with appropriate websites and advertisements is far easier than in the context of video content. Video content may be devoid of explicit tags that are indexed, may contain sarcasm, the audio and video content may be inadequate, or just non-existent. So, there are days I have been left wondering why I was exhibited a particular advertisement in the beginning of a YouTube video. Sometimes, I conjure up my own hypothesis about what actions in my history, the cookies on my browser/ device (my kids do use my iPad), and what specific search terms triggered those. Black box!

Customization-personalization or privacy: A trade-off

This is no simple trade-off: the one between customization and personalization and privacy. By exposing my preference for a particular sport (like cricket) to YouTube, I get to see a lot of interesting cricket video suggestions, right up front on the home page. By subscribing to specific channels, liking certain content, and commenting on some others, I help YouTube learn more about me. These actions provide enough inputs for the platform to customize the match and personalize suggestions. However, there are limits to when such expressed preferences breach privacy. Like when my phone’s AI assistant suggests a wake-up time for me based on my first appointment of the day, or when my wearable device chides for not walking enough during the day (how many steps can you walk in days like today, when the entire country is under lockdown?).

This is not new; and it could be creepy. Remember the 2012 story about the US retailer Target sending out mailers about baby care to a teenage girl, and the parent discovering it? Neither the local Target store had a clue, nor did the parent. The Target central database was able to predict something as personal as teenage pregnancy! Target realized that they were spooking people, and would randomize the offers, like putting ads for lawn mowers next to diaper coupons. But still, they knew!

Dealing with black boxes

I wish I had a set of recommendations for you! One day, possibly. But today, this is just a personal trade-off. As for me, I wouldn’t mind sharing my location data with my phone as long as it provides me good navigation services. And my food delivery app to know where I am, so that I get choices from hyper-local restaurants. I would go one step further and allow my photos app to have my location access so that I could organize my photos by date and location. But to allow location access to online newspapers, no.

Happy matching.

Stay home, stay safe, stay healthy.

© 2020. Srinivasan R

App-in-app?

I recently got an email from my airline app that I could book my car ride within the same app. It was a way of providing end-to-end services. Much like the home pickup and drop service provided for business class customers by the Emirates. What are the implications of these for the customer, the airline, and the cab-hailing firm? Let’s explore.

It is an app-redirect

First, read the terms of how it works in the case of Jet Airways and Uber here. The substantive part of the T&C is hidden in the paragraphs quoted below:

“PLEASE NOTE, YOU ARE MAKING THE PAYMENT TO UBER DIRECTLY. JET AIRWAYS IS NOT RESPONSIBLE / INVOLVED IN THIS FULFILMENT PROCESS. JET AIRWAYS WILL NOT BE LIABLE AND/OR RESPONSIBLE FOR REFUNDS, DELAYS, REJECTIONS, PAYMENT AND FULFILLMENT OR OTHERWISE OF THE SERVICES OR IN RESPECT OF ANY DISPUTES IN RELATION THERETO, IN ANY MANNER WHATSOEVER.” (emphasis original)

Then, what is the value of this app-in-app integration?

Customer perspective

For the customer, it has the potential to work as a seamless end-to-end service. I imagine a future, where you would find a partner using Tinder or TrulyMadly, plan your evening to a game/ movie using BookMyShow, find a restaurant & book your table using Zomato, and take Uber whenever you are ready to move on, or better still, have an Ola Rentals car waiting for you through the evening. All in one app. Wouldn’t you love it, if all of it were integrated in one App? Just imagine the convenience if your restaurant-finder knew that you are in a particular concert at a specific place and you are likely to head out for dinner at a particular time. This specific knowledge could immensely help your restaurant-finder app to customize the experience for you – for instance, it could not only provide you those restaurant options that are open late in the evening after the concert was over, in a location that is close to the venue; it could possibly alert the restaurant that you were arriving in 15 minutes, based on your Uber location. And through the evening, post your pictures on Instagram and SnapChat, check-in to all those locations in Facebook, and Tweet the experience live.

Yes, you would leave a perfect trail for the entire evening in a single place, and if you were to be involved in an investigation, it would be so easy for the officer to trace you! No need for Sherlock Holmes and Watson here – the integrator app would take care of all the snooping for you!

Convenience or scary? What are the safeguards related to such data sharing across different entities? How will the data be regulated?

The Integrator perspective

Why would a Jet Airways provide an Uber link inside its App? Surely cab-hailing and air travel are complementary services. Plus, Jet Airways believes that its customers would find it convenient to book an Uber ride from within the Jet Airways app, as they trust the app to provide Uber with all the relevant details – like the estimated landing/ boarding time of the flight, drop/ pickup addresses, etc. Jet Airways also needs to believe that its customers would rather choose an Uber cab, rather than its competitor OLA Cabs, or any other airport taxi service. The brands should have compatible positioning. Given that Jet Airways is a full service carrier, and differentiates based on its service quality, Uber might be a good fit. But the same might not hold good for a low-cost/ regional carrier like TruJet connecting cities like Tirupati, where Uber does not operate.

Does integrating complementary services affect customer satisfaction, brand loyalty, customer switching costs, and/or multi-homing costs? In contexts where these services and brands are compatible, and there is a convenience involved in sharing of data between these services, there is likely to be some value added. Like airlines and hotels (hotels would like to know your travel schedule); currency exchanges and international travel (the currency exchange would love to know which countries you are visiting); or international mobile services. If there was no data to be shared between the complementary services, the user would rather have them unbundled. Think travel and stock brokerage.

That said, platforms find innovative complementarities. For instance, airlines (primarily the full-service carriers) have launched co-branded credit cards. In a recent visit to Chennai, there were more American Express staff at the Jet Airways lounge than the airline or lounge staff! And they were obviously signing up customers. What are the complementarities between credit cards and air travel, apart from paying from that card? A lot of business travellers have their business travel desks do the payments; consultants have their clients booking the tickets; and even for individuals and entrepreneurs, the credit card market is so fragmented that everyone holds multiple cards. And the payment gateways accept all possible payment options, including “paying cash at the airport counter”. They why co-brand credit cards – sharing of reward points/ airline miles. Either customers do not earn sufficient airline miles and using these co-branded credit cards help them earn more miles and retain/ upgrade their airline status (remember the 2009 movie, Up in the Air?); or they do not earn enough reward points in using their credit cards that they can redeem their airline miles as credit card reward points. Either ways, each one is covering up for the other.

In this covering up, or more diplomatically consolidation of rewards, the partners increase customer switching and multi-homing costs. Surely, redeemable airline miles might be more valuable to a frequent traveller than credit card reward points that have limited redemption/ cash back opportunities. But for loyalty to increase, it is imperative that both brands stand on their own – providing compatible services.

Mother of all apps

All this looks futuristic to you? A lot of you have been using an ubiquitous desktop app known as the browser for a long time, which has been doing exactly this! In a subtle form, though. However, there are firms that own multiple such apps, and they use a single sign-on – like all of Google services. Plus, even third-party sites like Quora allow for using your Google credentials to sign-in. The trade-offs are not always explicitly specified – it is always the case of caveat emptor – consumer beware.

Quora homepage

So, the next time you experience some cross-marketing across platforms/ apps, think what data might be shared across both the apps; and if you would really value the integration.

Cheers!

(c) 2017. R Srinivasan