Did Mark Zuckerberg and Facebook receive homework from the US Congress, for the new service ‘Dating’?

Do not rush to give a negative answer to the question in the headline.  Before answering, just think of the megatrends of the world.

We are living interesting times, when the world power is reorganized systematically, using visible and subtle tools, getting ready to be configured for the artificial intelligence age. Mark Zuckerberg testified in front of US Congress, in live session on FB, for what happened in Cambridge Analytica case.

It was an important emotional message, with an immediate reaction, with financial consequences, aiming to convince people that the power is still where it always supposes to be: at authorities, at US.

But let's become rational and see which facts might sustain an affirmative answer to this question.

What I understand from this story, beyond the concern towards the way the personal data of the people are misused, the danger spread around through fake news, is that the US Congress recognizes publicly the power of Facebook and implicit the control that it has over the Facebook users around the world. They do not dispute Facebook's right to make money from using the data it collects, but the fact that it has collected and used the data without asking for users consent. They do not want Facebook to be less powerful, but just ask them to respect certain rights of the users and ensure the safety of data entrusted by users.

In a world where the dimension of the population is considered an index of a nation's power, existing a company that has a tool that gather together so many people around the world and has their time and attention, captures data about their behavior, spreads information, influences their thoughts, influences behavior at global level, is like a super powerful social structure appeared in very short time, that may become, more powerful than any state structure. Not only that such a power is difficult to control, but it also generates big profits, high interests, which have more implications, globally. Yes, technology changes not only the way we communicate, but it changes the way we make money, the way we interact with each other, the time of spreading information. Even freedom of expression has new values since we have social networks. The right to freedom of opinion is a human right guaranteed today. You cannot forbid social networks, which empowers individuals and give them the tool to say what they think. But you may assign the companies owning such platforms, with responsibilities to the level of the huge power gained in such a short time.

About financial power, you may argue that there are already global companies with annual profit, higher than the GDP of many states, higher than Facebook, but the situation is not the same. Facebook and other social networks have already gotten the data and created already that dependence of the users. The interaction with users is direct and personal, volunteer and more profound. You can find someone's true preferences without asking him and without his intention to declare them. This will not change, not even after the GDPR enters into force. Interactions in online (social networks, search engines), create a digital fingerprint for each individual. GDPR is giving digital rights to EU citizen, personal data will not be sold to others without your consent, but your interactions will be included in Facebook statistics.

Paradoxically, GDPR will bring more money to social networks. Why? With the entry into force of GDPR, firms have to obtain the consent of those enrolled at newsletter, for processing their personal data under the new rules. For sure the majority of those who are asked about their consent will not accept again the same relationship - via email, with the companies. The social networks interactions and the idea that each person may impose rules to a company, the fact they may choose what to read about others’ good, services or events, are far more attractive for individuals, than receiving newsletters. Consequently, the companies have to get attention of their potential customers in social networks newsfeeds and they may do that, investing more in publicity, where the clients are: on social networks.

The communication between companies and customers will be realized mainly, through social networks.

One word defines the power: control. Control has been done in many ways. Let’s mention some of them: war, fear, discrimination, negative emotions, creating dependence and creating the desire for getting more, in shorter time, with less effort. Today we add to all these, the social networks and influencers.

Let’s have a look at this stormy story with Cambridge Analytica. Data analysis was the basis of the expansion and development of all the companies in any market and it has been the basis in conducting and forecasting results in all elections in any country. How the data were gathered was not exactly an problem, neither the way in which we were creating the demand on a market. The moment of deployment of Cambridge Analytica subject in media and the GDPR entrance into force, at almost the same time, it might be a coincidence. It looks like was the right time for the right subject and the scandal about Cambridge Analytica situation, was the perfect opportunity to bring to the world attention the dangers the GDPR tries to prevent and the importance of having the GDPR .

Still, after Mark Zuckerberg testified in US Congress, I was very much surprised of the ‘Dating’ launch at F8 Conference. I even posted a comment about that on FB and Twitter: << Dating?!For someone who is interested in business, I consider that FB is too much about personal relations. FB is launching a new service to be able to get even more data about users? Or, this is the last song of the swan, or there is a piece which is missing in the puzzle at the highest level and Mark Zuckerberg got homework to do...”

It was even more surprising to see the reaction of the audience at F8 Conference. Mark Zuckerberg announced the launching of “Dating” after testifying in the US Congress and everyone in the room applauded! I understand that he gave to each participant at the F8 Conference, a free gift - Oculus Go portable handset and the audience was very happy, but no one is concerned about the fact Facebook will get more personal data about users? It is so easy to restore the trust? It is difficult to believe that it was discovered over the night, the necessity of a dating service at global level, aiming to establish long term relationships.

Indeed, there are some mega-trends observed at global level: the tendency of people to live alone and the great number of divorces, to which, if I add the individual's emancipation and the other unintentional effects of the Internet, there are plenty of concerns for the world's decision-makers. In fact all these megatrends fundamentally change the relationship between the individuals and the state. Governments will have bigger problems to govern in such conditions, all around the world.

As I said US authorities don't want Facebook to have less economic power or fewer users. Facebook is a US-based company and the more people use its services, the more it increases its strength. What authorities want is to use Facebook power over individuals, to solve the problems they face, to sustain them in getting more power in AI age. In fact some of these problems were created by the internet and social networks, but they don't say clearly that they will use personal data for this purpose. The same rules should not be respected also by the authorities?

The medium and long term plans of the world’s most powerful economies are much more connected than is let it be seen. I may say that is not a coincidence that almost in the same time, people get digital rights with GDPR entrance into force and the robot Sophia becomes the first robot that gets citizenship. It is a symbolic exchange, to be registered by the history, as a milestone in the shift of the world from informational age to the AI age.

Mark Zuckerberg has today the meeting with the European Parliament and will be very interesting to see if he will receive more homework to do …

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Game theory on everyone understanding

Game Theory is a science with a name that awakens curiosity, because it combines two words that call two opposing concepts, which apparently have nothing to do with each other. The first leads us to study, to learning, to science, to research, to a serious and difficult thing, and the second to play, to fun, to frivolity, to win, to luck (gambling).

We can even guess from the name that we have to look for a equilibrium between the two concepts and this equilibrium must be sought in the results generated by the interaction between the players.

What is actually game theory and why is it so important in business?

Far from being an easy or frivolous thing, this science of games, in business, has an essential role in assisting management in choosing the decisions that maximize the profit. It gives us clarifications about the types of interactions between players, teaches us how to identify them in our current business activity, provides us with an algorithm for search and identification of decisions that maximizes our profit and teaches us how to act in each case, influencing the decisions of others players, in order to maximize our profit.

If we take into account that game theory is a sub-branch of mathematics, what we have to do is, firstly, to define the game as interaction between the players.

The game is a succession of decisions (simultaneous or sequential, repetitive or played one-time only, etc.), which sometimes involves random events, but which all respect a certain structure of winning, given by the rules of the game. These rules of the game show how the decisions are made by the players and in which order.

As in any game, players aim to win; in business this earnings are mainly profits. So, rationally, any company on a competitive market will pursue maximizing its profit, taking into account the decisions of the other companies active on the same market.

A player's strategy is a possible (achievable) action that the player can choose in the game. So a player needs to know all possible strategies (actions) that he has, as well as those of competitors, and the results generated by each combination of strategies (actions), in order to make the decision that maximizes his payoffs in a game.

Now, for each possible strategy, each player gets a payoff, defined by a certain payoffs function. As each player has several possible strategies, there will be more payoffs functions.

For firms, the payoffs function can be given by the function of profit (or of income, or of costs); everyone knows how to calculate its profit, so we will not discuss this topic now, but I emphasize that in order to be able to choose the strategy that maximizes profit, depending on the type of the game, we need to see which optimal strategy we have taking into account the interactions with competitors, we need to learn if there is a Nash equilibrium (or more), we need to see if we can apply the trigger strategy, in what sub-game there is a perfect equilibrium. All of these things will be taught in our business strategy course - The Game Theory in Business, over 3 days, based on examples from current activity of the firms.

In other words, we cannot talk about maximizing profits on a competitive market without applying game theory. Otherwise, our results will only depend on the chance.

We want to win, but do we know how to play?

Because game theory is little known and applied by managers, I'll take an example to help you understand its usefulness. I will not explicitly describe the algorithm of finding the optimal decision, you will learn it at the course and it is different depending on the type of the game, but it is very important to understand that making decisions without using this algorithm, even with the best intentions, you can to lose a lot of money.

Suppose we have two competing firms on the same market, Firm A and Firm B, who each sell a product and have to set up their business plan for the next year.

Firm A has two price options for its product: the price A1 of 50 Euro / unit and the price A2 of 30 Euro / unit. Firm B has, also, two pricing options for its product: price B1 of 55 Euro / unit and price B2 of 32 Euro / unit.

-          If Firm A uses the A2 price and Firm B uses the B2 price, both companies get 1 million Euro profit.

-          If Firm A uses A1 and Firm B uses B1, both companies earn 5 million Euro profit.

-        If Firm A uses the A1 price and Firm B uses B2, Firm A gets 2 million Euro profit and Firm B gets 10 million profit.

-         If Firm A uses the price A2 and Firm B uses B1, Firm A gets 7 million profit and Firm B gets zero Euro profit.

Which price will be used by each firm, to establish its business plan?

I know that there are very few people considering these 4 pricing decisions and I know that most of the managers, takes into account, when establishing the business plan, the highest profit resulted from calculations, without taking into account the competitor decisions. They consider it's not recommended to plan a lower profit than in the previous year, thinking that, in this way, they avoid any problems with the shareholders and they keep their jobs!

If, in our example, Firm A chooses the A2 price, this would be a wrong choice, because instead of 7 million Euro profit, it would only get 1 million Euro profit, because Firm B has a strategy that maximizes its profit, no matter what price choose Firm A of the two possible (A1 price and A2 price)- and that's it price B2. And if the managers of Firm B know how to apply the theory of games in business, they will choose price B2! Firm A does not have such a strategy! I think you realize what repercussions would have on business and management, such a decision, if is obtained only 1 million Euro profit, instead of the 7 million Euro profit, budgeted. You understand that will follow other decisions related to promotional campaigns based on price reductions, hoping that the 7 million Euro profit will be achieved; all of them must be established using the game theory, in order to maximize the profit, taking into account the decision of our competitor.

Think that you and your competitor make decisions to reduce the price, simultaneously and / or sequentially. Every discount made by you and your competitor reduces the price and reduces the outcome of each campaign! You get into a real price war that will reduce your profit. It is very important not to decrease, with our mistaken decisions, the ability of the company to produce profit in the medium and long term!

In our example, the set of strategies to be used to establish the business plan is price B2 for Firm B and price A1 for Firm A; and the budgeted profit for Firm B2 is EUR 10 million, while Firm A will get a profit of EUR 2 million. 

As you see, it is very important to understand how you influence each other's results (it is necessary to determine your demand function, cost function, profit function!), with the decisions you make, if you are competing on the same market! As you know, in a company, there are many decisions made in all functional departments, which are affecting the company's profit. Therefore, it is recommended that all managers, who make strategic decisions in a firm, to know and to apply the theory of games.

All the examples in the our course are in this form and deal with games between competitors about pricing, simple and sequential negotiations, marketing, product warranty, regulating activity by an authority, monitoring employees, entering a market, launching a product etc. .

I'm waiting you to the Game Theory In Business course to understand what games there are on the market where you activate and to learn to choose the strategies that maximize your profit.

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How we make decisions from the perspective of game theory

In business, any mistaken decision we make is concretized in losses, and often such results are unexplained for management. It's not easy to work on a competitive market. However, regardless of the experience we have, for each decision, we need to consider the competitors' reaction to our actions and make those calculations and analyzes so that the outcome of our decisions does not depend solely on the chance.

Record sales, declining profits. Why?

A few days ago, I read news that a big retailer in the fashion industry recorded the highest sales figure in 2017, but nevertheless the profits fell significantly. Such situations are quite common and are based on decisions that are not founded on game theory, data, and accurate calculations.

Certainly, the sales volumes for the established prices were not correctly forecasted and it wasn't correctly anticipated the competitors' reaction to the decisions taken by that retailer. If we only want a higher market share and we reduce the price without looking at the profits we get, we are not only redefining the existing standards for value and price in relation with our customers, but, the company's ability to generate profit on medium and long term, is also affected.

When we talk about business results, we have to be rational, even if everything we communicate to clients must have an emotional component! Game theory shows how to maximize our profit on a competitive market that involves multiple and complex interactions. Without game theory, we cannot maximize profit on a competitive market. Why? Simple. Because, in its absence, we cannot understand how our results are influenced by the interactions with direct competitors. Without it, we cannot accurately anticipate what is going to happen on the market, nor will we manage to manipulate the strategic environment, so we can achieve the desired results.

No matter the size of the company, game theory is a must

 

Regardless of the size of the firm and the field of activity, profit maximization must be considered in every management decision. Even if we are talking about a small company that does not have a national or international activity, it is necessary to know and apply the games theory and the management of the company should not have a lower level of knowledge than that of a multinational!

If you entered a market with competitors, regardless of whether the firms are large or small, you need to know how you will influence each other's results with the decisions you make. Otherwise, you risk going out of the market at the first competitor's advertising campaign!

It is very important to understand what competitive games you are engaged in, to identify them and to know how to choose the optimal strategy that will maximize your profit.

Equally important, is knowing if you have a dominant strategy and what results it generates, or what you have to do if only your competitor has a dominant strategy!

Identification system of optimal business decisions

At the manager's challenge, in the Learning Network interview, which you can read by following this link https://www.linkedin.com/pulse/you-ready-success-dalia-anghel/?published=t, most of whom I have discussed the exercise, intuitively decided to advertise, without seeing the competitor's dominant strategy of not advertising, which maximizes his profit, regardless of the decision of the other player.

I have encountered situations where a company's management has made the decision to enter a market just because a direct competitor was active on that market, considering that if that competitor sells,  the new firm who entered the market will sell as well and will make profit.

Entry on a market must be done only if we get profit, sharing the market with other competitors, also, anticipating their reaction to our entry on the market (reduce prices, do not reduce prices?!). We do not enter a market, we do not launch a new product, just to respond to the actions of the competitors. We do these things only if these are the optimal strategies that maximize our profit (or minimize our loss), given the competitor's strategy.

I know it's much easier to make decisions based on feeling, intuition, experience and even a certain 'wisdom' that sometimes exists at industry level. It's easier to decide that you are doing a thing by considering just one option and ignoring the possible reactions of the competitors, but by doing so, you can only hope to guess the decision that will maximize your profit.

When we talk about strategy, it must be clear that hope, desire, dreams and luck are not strategies. I have always said that most money is lost as a result of decisions made in the absence of the correct information needed to substantiate them and game theory helps you to become aware of this and also provides you with an algorithm of choosing the optimal decision.

In conclusion, from the perspective of game theory, we rationally make only the decisions that maximize our profit, given the interactions with the other competitors.

Learn how to apply game theory in business to get those strategic benefits that maximize profits in dealing with direct competitors.

I look forward to discussing and discovering more in our strategy course - The Game Theory In Business!

 

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