Social Media and its impact on News

A few months ago, I saw an interesting development on my Facebook homepage. Together with updates about a friend’s marriage and photos from the party the night before, was a link to the latest on the Euro Debt Crisis from the Washington Social Reader. As I went to the link, I saw myself reading not only the article on the debt crisis, but also several other articles that interested me. As I was still logged on to my Facebook page, my friends online got feeds telling them that I had ‘liked’ some of these articles, which in turn led to several of them reading these articles as well. Over the last two months, I have learnt of some of the most significant happenings globally through the Washington Social Reader on Facebook- right from Salman Rushdie backing out of the Jaipur Literary Festival to the planned introduction of Starbucks into India.

Social Media is increasingly gaining importance as a news-distribution platform. To quote from a recent study by the Pew Research Centre, “If searching for news was the most important development of the past decade, sharing news may be among the most important of the next”.

While a close to 30% of visits on news sites come from referrals on Google News, the proportion of visitors from Facebook, although smaller is growing[i]. Digg.com is a website created exclusively for this purpose, allowing people to vote stories up or down. It now even has a feature integrating Facebook and Digg. Indeed, letting friends guide you when choosing news articles makes for a useful and effective filter to sort and get customized news, without loss in privacy.

Besides, news shares, another growing way to get personalized news is through, data monitoring by websites. Google, for instance, has a wealth of information gained from its various sites- Google Search, Gmail, You Tube, Google+ etc. This database of information is only likely to get deeper, as Google looks combines this information across its various portals for individuals in its new privacy policy. With such large amounts of information at hand, Google can provide a completely customized search experience on all fronts, just as it plans to do, including through news.

Facebook, again has a wealth of information about its 800m plus users- right from the sports they follow to their current location. It chooses to share much of this information with Google’s rival search engine Bing, and there is a distinct possibility of this information again being used for a similar customized search platform as the one Google is introducing.

There is an erupting debate over the ethicality of such customization and the privacy invasion involved. Much is being said, for instance, about Google, going back on ‘Do no evil’. However, strong arguments can be made to say that such customization has both benefits and drawbacks for users, and a fair analysis of the issue would warrant for a much larger debate.

Besides, the sharing and customization of news, social media has greatly influenced the creators and the reporters of news. Now, it is no longer just the journalists who are reporting news. Ordinary citizens too are reporting, and often, in live time. For instance, the news of Osama’s death was leaked on Twitter, as Shohaib Akhtar, an IT consultant from Abbottabad tweeted live about the raid, unknowing, at least initially, that the raid indeed was for Osama’s capture. (Exhibit 1) In a more recent incident in India, Twitter has been the platform for ‘Shahrukh Khan-Sirish Kunder Slapgate’, as much publicized by the media.

In a recent paper[ii], authors argued that Twitter is more of a news media than a social network.  After studying 41.7 user profiles, they concluded that over 85% of the trending topics tend to be in the nature of headline or persistent news.

They also emphasise the power or retweeting (the practice of tweeting someone else’s tweet again so that it can be seen by retweeter’s followers), which allows news to spread very fast and also makes twitter ideal for breaking news. They show statistically that a tweet that is retweeted by an individual with 100 followers, has on an average a 1000 additional recipients (Exhibit 2).

Such creation and sharing of news by common citizens, started with the emergence of blogs in the late 1990s. The growth of blogs thereafter has been exponential, and as of February 2011, there were over 156 million blogs in existence[iii].

One of the initial incidents through which the significance of blogging came into light was when the U.S. Senate majority leader Trent Lott, made some remarks favouring U.S. Senator Strom Thurmond. By many bloggers, this was seen as implicit approval of racial segregation, a policy that had been favoured by Thurmond in his presidential elections several decades prior. Bloggers highlighted this and even produced documents and interviews in support of this. The media initially took no note of Lott’s comments and paid attention later, only after several bloggers brought up the issue. Eventually the issue took such a scale that Lott has to resign as leader of the majority.

While initially mainstream media was apprehensive of and even resistant towards the growth of such bloggers, their attitude has changed over the years. Several such as Wall Street Journal and the Economist have incorporated blogs successfully into their publications for real time analysis of news. It is also common to find publications inviting contributions in the form of videos, pictures etc from their readers. The pioneer in this, was the Huffington Post, launched in May 2005, which used a ‘hybrid’ approach to reporting, incorporating articles from journalists, bloggers and links to other news sites, all on the same platform.

One of the major issues highlighted with relying on news reported by citizens on social media is that it is hard to verify the accuracy of the same. There have been several instances of incorrect news being circulated on Twitter. The team from breakingnews.com found that several photos and videos being circulated about the East Coast earthquake in the U.S.A last year were false. Several versions of a particular video, that was widely circulated, tried to pass off images shot during the Tokyo earthquake as NYC buildings shaking in the earthquake. Again, several rumours were circulated on Twitter, such as the one that the Washington Monument was leaning post the earthquake, which were later proven entirely false.

Indeed, it is a challenge to verify the authenticity of any information posted exclusively on the social media and use it for news broadcasting. Photographs can be examined for any visible indications to the location claimed. The weather in a particular place can be looked up to see whether it corresponds to the weather on a particular date as seen in the photo (as quoted by Mohamed Yehia of BBC Arabic, in the Economist issue date 9^th July, 2011). Despite such methods, however, a shadow of doubt may always remain.

Verifying the accuracy of tweets posted on Twitter is even more difficult, and the journalists largely use Twitter as a means to gauge public interest, occasionally incorporating these public views into their articles.

Despite such shortcomings, however, it is clear that social media, has carved out a grater role for the public in journalism, impacting both the user experience as well as the content creation aspect of news. From the user perspective, it has both empowered individuals-giving them a platform to speak up as also made the user experience better, allowing them to read news customized to their interests, although arguably at the cost of some privacy. From the content creation side, it has had an impact with the users challenging some news posted by the media, offering their opinion on a variety of issues as well as sharing some news in live time.

According to a 2009 study by eMarketer, by 2013 nearly 155m users in the USA will consume user-generated content, up by 34% from 2008. In reality, these numbers will only look bigger. In a nutshell, social media has made news a more interactive process, more as a back and forth between the media and the public, instead of one-way communication.

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[i] Economist article titled ‘The people formerly known as the audience’, dated 9^th, July,2011

[ii] ‘What is twitter, a Social Network or a News media?’ authored by Haewoon Kwak, Changhyun Lee, HoSung Park and Sue Moon, April 2010

[iii] "BlogPulse". The Nielsen Company. February 16, 2011. Retrieved 2011-02-1

Thank you Mr. Singh!

As I write this article on my Macbook, sipping on a Pepsi, with a Blackberry beeping by my side and a pair of Levis thrown into the laundry bag, I realize how much I have to thank Manmohan Singh for.

For before he brought about those face-changing economic reforms in India, almost exactly two decades ago, there was no Coca Cola or Pepsi. For a Levis or electronics manufactured outside of India, I would have had to request my Uncle in the US to get those on his next trip to India, of course at the cost of hefty custom duties.

The 1991 reforms truly changed the Indian economic landscape, opening it to the world by easing import restrictions and tariffs.  Additionally, bureaucracy was greatly reduced and the License Raj done away by introducing competitiveness through the private sector.

Truly, the Indian growth story since 1991 is impressive if not remarkable. From a forex reserve holding accounting for less than 2 weeks of imports, we are today the country the 7^th highest accumulation of forex reserves in the world. In terms of GDP (PPP terms) we have moved up 5 places to being the 4^th in the world and have seen exports as a percentage of GDP more than treble.  With double-digit GDP growth rates expected going forward, India is touted as the next economic superpower.

Of course, much more remains to be done before we do actually attain that super power status. Many issues are to be addressed-more than 40% of out population lives on less than $1 per day, corruption is rampant, education is far from universal and the rest.

However, even as we do work on these issues, we must take this moment to stop and celebrate our success in these twenty years. And yes, as we raise the toast, how can we forget the man who got it all going? Thank you Mr. Singh!

The changing economics of luxury goods

Luxury goods have a high level of income elasticity and are classified as Veblen goods. The latter implies that for luxury goods, people associate price with quality, and hence their preference for buying such goods increases as a direct function of price. Handbags, luxury cars, high-end watches are some examples of luxury goods.

Globally, the economics of luxury goods has been changing rapidly, especially since the crisis. The growth in the digital and online market, increased IP protection, new royalty rules and the shift in consumer demand toward more ‘usable’ goods have all be transforming the luxury goods industry.

The most obvious change however, has come from the shift of luxury market from the developed countries in North America and Western Europe, to emerging economies. According to a study by Bain & Co., while US, the world’s largest luxury market, is expected to grow by 8% to about 52bn euros in 2011, China is expected to see close to 25% year-on-year growth. At this pace growth, Greater China (including Taiwan, Macau and Hong Kong) is expected overtake Japan as the world’s 2nd largest market for luxury goods by the end of this year.

This increased penetration of luxury goods in emerging economies has interesting socio-economic implications. As the Veblen good classification makes clear, luxury goods are meant primarily for conspicuous consumption or more simply to ‘show-off’.

In developing countries, where there is stark and growing gap between the rich and the poor, this may breed social unrest.

This has particularly come to light due to recent reports about the elite in North Korea flouting the ban on import of luxury goods. According to South Korean officials, while the food shortage-ridden North Korea spent $ 46 million on importing food staples, it also spent $10 million on luxury goods between the January to May of this year. The ban was imposed by the UN in light of the extensive food aid guaranteed to North Korea.

 In a somewhat similar measure, in May this year, Chinese officials, in their words, concerned about growing ‘hedonism’ within the country, banned any advertisements highlighting lavishness and aristocratic lifestyles.

Indeed, such measures raise questions about whether other countries in the world, which suffer from stark income inequalities, should pose similar restrictions.

To answer this we need to address fundamental questions about human rights, ways to achieve social equality and responsibility of the elite towards society. While these are all matters of lengthy debate, we urge that you give this some thought before you head out to purchase your next Jimmy Choo or LV!

In our next post, we shall look more closely at the luxury goods industry in India and understand where that’s headed..do keep a look!

The Luxury story in India

The roots of the luxury goods industry in India date long back in time. The land of Rajas and Maharajas, India was renowned for its opulence. Jacques Cartier visited India in 1911 in pursuit of fine pearls and persuaded a number of Maharajas to reset their jewels using Cartier designs. However, with unrest in the country, the market for luxury goods almost ceased to exist post independence. During the License Raj, when Income Tax rates were as high as 90%, anyone who could own high-end luxury products was perceived as devil.

Today, India with 126,000 HNIs (High Networth Individuals) and another 3 million households earning above 10 lakhs, is truly ready to consume luxury. The base is huge and the market promising, according to Confederation of Indian Industry (CII). The highly uneven distribution of income in India means that wealth is concentrated in small pockets- with the wealth held by the 100 richest Indians being comparable to that held by the 400 richest in mainland China.

The luxury market in India, despite the high potential remains surprisingly small. While China, makes up 10% of the global luxury market while India accounts for less than 1% according to data by Altagamma.

With the issue not on the demand side, it is the high import tariffs (30%-40%) and restrictions on FDI that keep several foreign luxury retailers off India shores and constrain supply.

Another constraining factor has been a lack of upmarket spaces where luxury boutiques may set shop. Decades ago, when luxury brands forayed into the Indian territory they had to make do with the five star hotels’ shopping arcades due to lack of decent luxury retail infrastructure in the country. While this problem has been resolved partly with the set up of two dedicated locations for luxury products — the DLF Emporio mall in Delhi and the UB City Mall in Bangalore —there is nothing akin to a New York’s Fifth Avenue or a London’s Bond Street in the country.

Making matters worse, while brands pay exhorbitant rentals for a retail space at luxury malls, their sales remain low as they get many customers who visit the shops simply to get a feel of the luxury products without an intention to make a purchase. This is because many of the elite Indian choose to shop abroad to escape the custom duties, while foreign visitors stick to shopping arcades in five star hotels.

For most brands today, meeting immediate sales targets is not the objective. Most of them are here with long-term plans, hoping that conditions will get more favourable over time and they will be able to capitalize to the Indian Growth Story. However, whether India does go the China way, remains to be seen.

Society and economics: Revisiting the causes behind the Greece crisis

With Greece again back in the news, it is interesting to understand some non-obvious factors that were behind the crisis.

The Greece crisis, as wide reported, is attributed to the growing public deficit and thereby debt in the country. This prompted downgrading of the credit ratings of Greece by leading agencies, pushing up the yield on Greek bonds.

At the root of the spiraling deficits were fundamental weaknesses within the economy. While factors such as unrestrained spending and cheap lending have been widely discussed, there are some unusual theories to the causes of the Greece crisis that are interesting to explore.

Philomila Tsoukala, an associate professor at Georgetown University, suggests that the Greece crisis has it’s origins in the fact that private sector is comprised mostly of family-owned businesses with over 75% of businesses being family owned. In such businesses, there are no minimum wages and wives often work for husbands for free.

This structure has two major implications. For one, it has kept down wages. In fact in Greece, real wages have grown at a much slower rate than the growth in productivity. This has led to reduced consumption, investments and thereby reduced GDP growth. The second major implication is that this family structure has hindered competition and innovation, pushing down wages.

In another interesting viewpoint, Dimitris Georgakopoulos, head for taxation Ministry of Finance, traces the Greece crisis back to the 400-year-long Ottoman rule over Greece, where people evaded taxes in resistance. Indeed, tax evasion and corruption lie at the heart of the Greek crisis, with cheating on taxes being a common norm. Independent sources indicate that Greece loses between € 50 - €70 billion in revenue due to tax evasion each year.

A third explanation of the crisis, as argued by prominent writer and journalist Robert D. Kaplan, is that the crisis was dictated by fate, and stems from Greece’s geographical position. He highlights that Europe’s main troubled economies-Italy, Spain, Portugal and of course, Greece, are all located in the south.

These Mediterranean countries were characterized large landholdings, which lend to an inflexible social order and prominence of statism and autocracy. This is reflected in fact that Greek politics for the last half-century have been dominated by the Karamanlises and the Papandreous families. Kaplan argues that culture of autocracy dictated and even today has a bearing on the economic success of Greece, leaving is lagging behind other countries that were more “humanized”.

These points of view are interesting in order to understands how societal structure and norms have an influence on economic success and how economic growth is linked closely to community behaviour and structure created over centuries.

While we may now have some idea of how the Greek crisis was truly caused, recent incidents indicate that the crisis is far from being resolved. In our next post, we shall look at bailout packages being proposed for Greece and what impact are they going to bring about…watch out for that! 

What does the second Greece bailout mean?

“Greece is about to default and the Euro Zone has just come up with a comprehensive plan to bail it out. "

Does that sound familiar? It should. For just last May, international authorities agreed to a €110bn bailout, and now it’s time for a second round of bailout, this one as hefty as €120bn.

The way the bailout plan is structured, however, suggests that second round may not be the last. The Greek debt is about to touch 160% of its GDP, and the debt by all measures seems unsustainable. The government has been running deficits and needs external funding to cover the deficits and meet payments on debt. The only sustainable solution out of this mess for the Greek economy is getting back to growth.

However, the bailout plans all stress on austerity through reduction in spending and raising money through taxes- the plan is in fact to raise over €14bn over the next 5 years. Keynesian economics stresses on the importance of demand and consumption in order to promote growth, and such stress on austerity and low spending in the Greece economy is only likely to weaken the economy further.

Moreover, the plan fails to tackle some core political issues vital to restore growth. For instance, while the Hellenic Railways, which loses about €3mn a day, is due to be privatized, there is no clarity on how the staff strength would be reduced or costs cut. It is to be recalled that in 2009, Goldman Sachs and Morgan Stanley had pitched the Greek government on a plan to overhaul the system, by laying off half of it’s 7000 workers and taking on about €8bn but that did not go through in the election year. There also seem to be no strong measures against political lobbyists who often benefit most from the government’s excessive spending.

With weaknesses in the bailout plan, what thus appears immediately is a viscous cycle of bailout-austerity-low consumption-staggered growth-bailout.

While the markets at large may be responding positively to the measure, such a bailout brings us to a more fundamental economic question. Is Greece actually free-riding on the economic strength of other countries in the Euro Zone? Do the second Greece bailout send a poor message to other countries in the Euro Zone than they too may thus free ride? If so should actually be allowed to default or asked to leave the Euro Zone, as a punishment for it lax economic policies?

We shall look at some of these issues in our upcoming posts..do keep a look out!