Google, the People’s Economic Indicator of the Future

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           It began in 2009, near the mountains of Northern California, the Cradle of Digital Civilization…Google headquarters. Hal Varian, the company’s economic analyst, was struck with an idea: What if Google search queries could be accurately used as an economic indicator? Now, the national banks of Britain, Italy, Spain, Israel and others, along with the US Federal Reserve, have followed up with studies of their own. The results? An intriguing “probably”.

Known as the Google Domestic Trends Index, it can be accessed by anyone simply through, you got it, searching Google. Unlike a lot of indexes which merely act as trailing indicators, the Google Index can act as a current, if not leading, indicator. While it takes most index reports a few weeks or more to gather data and report, Google “makes its updated data available one to three days after searches”.

GoogleAutoGraph

            Take, for example, the above graph of Google searches related to buying automobiles. The US governments Cash for Clunkers program launched in July ’09, and, accordingly, the searches for buying and selling cars increased dramatically. Not limited only to cars…

GoogleEmploymentGraph

            This graph catalogs Google searches relating to unemployment and unemployment benefits. From the time of the ’08 recession on, the increase is visibly clear. With many other examples, there appears to be a clear relation between Google searches and real fluctuations in the US economy.

With research on the dependability and accuracy of the Google Index currently ongoing by many inside and outside the US, its move toward acceptance marks an exciting and modern evolution of economic indicators and the way we can watch the interaction between the “digital” and real world in almost real-time these days; a real-time Census in some ways.

However, there are some who warn that utilizing Google as a true indicator right now might be a risky thing to depend on. Lucrezia Reichlin, of the London Business School, thinks that, while “Google is sexy” and may prove useful as the Internet Age progresses, more time is needed. Its search figures only go back to 2004, and it doesn’t take into account those who don’t use the Internet as often (namely, the “elderly and the poor”).

Progress, though, might be the key word. The Internet is an ever-expanding tool and the number who don’t interact with it shrinks every day. Circling back around to Google, Project Loon aims to bring easy internet access to those who are in more out-of-the-way, remote, or impoverished locations via high altitude Wi-Fi balloons. Greater connectivity will make this small world even smaller, and the reliability and correlation of Internet searches to market trends will only increase. There are already some studies that claim models using the Google data more accurately reflect real market movement than models excluding the data. The future is now. Probably.

Links: Businessweek “Google: Central Banks’ New Economic Indicator” by Aki Ito & Alisa Odenheimer, August 9th 2012. http://www.businessweek.com/articles/2012-08-09/google-central-banks-new-economic-indicator

Google Domestic Trends; http://www.google.com/finance?q=GOOGLEINDEX_US%3AUNEMPL&ei=eUrcUsjKCYqWiQLmCQ

Do Movie Theatres Love Recessions?

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When’s the last time you watched a film in a movie theatre? This past weekend or has it been awhile? Well, if you’ve watched a movie in a theatre within the last month, you’re in the minority.

Sixty-one percent of adults said that they rarely or never go to the movies, according to a Harris Interactive poll conducted in early 2012. More importantly, the moviegoers indicated that the recession had impacted how often they go to the theatre. Fifty-five percent of the people who watch movies in the theatre said that they see fewer films now.

However, in 2009, ticket sales grew by 17.5 percent, to $1.7 billion, according to Media by Numbers, a box-office tracking company. Attendance also grew by 16 percent.

The disconnect between those surveyed in the Harris Interactive poll and 2009 box office numbers might seem perplexing, but a quick analysis of the yearly total gross numbers helps us better understand what’s going on. In 2009, total gross grew by 10 percent. But in 2010 and 2011, — years which those surveyed in the Harris Interactive poll would be recollecting — total gross declined by 0.3 percent and 3.7 percent, respectively, according to Box Office Mojo, a box-office reporting service.

The idea that people who want to forget their troubles often do it in movie theatres might be a misconception. In 1989, the employment rate was at a relatively low (and happy) 5.4 percent, but theatre audiences grew by 16.4 percent. In 2011, when the unemployment rate was hovering around nine percent, ticket sales declined by 4.2 percent from the previous year.

The reason for the incongruent relationship between ticket sales and unemployment rate is due, in large part, to the quality of movies made. Though Martin Kaplan, the director of the Norman Lear Center for the study of entertainment and society at the University of Southern California, argues that it’s common sense that people want to hide in a dark place and forget about their problems, they might not want to if they’re not intrigued by any of the movies being shown in theatres.

Moreover, as theatres continue to make technological advances (and pay for these technological advances) and movie studios continue to lose money on eight out of ten films made (according to my movie business professor, Peter Exline) ticket prices will continue to increase.

Ticket prices have grown by 41 percent since 2001, according to The New York Times. In 2001, the average price for a ticket was $8, but in 2011, the price had increased to $11.75. Children’s tickets rose 67 percent in the same period and senior tickets increased by 95 percent.

The other factors that influence yearly box office sales — quality of movies and ticket prices — often mask our ability to understand whether there is an inverse relationship between box office totals and unemployment or overall health of the economy. Though consumers might spend more on affordable splurges during times of distress, perhaps a night out at the movies isn’t so affordable anymore.

Sandwich Island

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Sandwich Island sits in the northwest corner of the University Village International Food Court adjacent to an eclectic assortment of family-owned international restaurant options. For the last 20 years, Long Jang Wu has mixed her “made fresh everyday” potato salad, piled on meats and veggies on sandwich rolls, and served students, faculty members and South Los Angeles regulars.

Wu will make her last sandwich on May 31st, 2014 when the University of Southern California begins construction on the USC Village, a $1.1 billion redevelopment project that will transform the University Village into a “vibrant, pedestrian-oriented and safe environment.”

The USC Village will include new student housing, academic space and retail and entertainment offerings, according to USC. In addition, the redevelopment project will create 12,000 new jobs and the university plans to hire at least 30 percent of the jobs from local sources.

Though the university has attempted to help Wu find a new location for her popular sandwich shop, rental space near the university is limited and expensive.

“It’s very difficult to find locations for small businesses around USC,” Wu said. “The university tried to help us find a new location, but the good spots are either taken or too far away to keep the business we get from USC students, which is the most important.”

The university has given the restaurants in the International Food Court an option to return to the new USC Village in three years when retail spaces have been completed. The option exists, but the university hasn’t promised anything and Wu, who immigrated to the United States in 1982, hasn’t known much else other than Sandwich Island.

“I’ve been working here seven days a week for the last 20 years with my husband,” Wu Said. “Maybe we can rent a food truck temporarily, but it costs too much. The truck will set us back $3,500 per month and parking near the university will cost upwards of $1,500. That’s just something we can’t afford.”

On weekdays, Sandwich Island will serve upwards of 500 customers, the majority coming from USC, the largest private employer in Los Angeles County. You can find Wu’s daughter or son manning the sandwich station or cutting vegetables. And Wu is constantly trudging between the refrigerator and the register greeting regulars and meeting first-time customers.

Two large “Cash Only” signs are placed strategically at both the location to order and point of sale. Sandwich Island and many other businesses in the University Village International Food Court only take cash, choosing to avoid credit card processing fees.

“When we began, no one had credit cards,” Wu said. “The evolving technology and the processing fees, ultimately, scared us away from pursuing credit card options, but we definitely thought about the pros and cons.”

Though the cash only option hasn’t impacted Sandwich Island’s business negatively, the Great Recession sure has. When families or individuals struggle with paying the bills, they often take their lunch to work. The more people that take their lunch to work, the less business Sandwich Island gets.

In addition to the recession, an increase in competition, especially from the world’s largest restaurant chain, Subway, has impacted business at Sandwich Island. In a market where awareness is paramount, Subway has the upper hand. And with three locations within a mile from USC’s campus, purchasing a sandwich at Subway might also be more convenient for consumers.

Sandwich Island focuses on word-of-mouth marketing and with platforms like Yelp, the small sandwich shop tucked into a corner of the International Food Court has been able to stay competitive.

“I don’t know much about Yelp, but we have great reviews and that’s where a lot of our new customers learn about us,” Wu said.

On Yelp, Sandwich Island has 107 reviews with an average 4.5 out of 5 star rating. The reviews constantly compare Sandwich Island to Subway noting the cheaper prices and better taste of Wu’s restaurant.

In more than 20 years of business, Sandwich Island has only changed its prices four times. But with the volatility of wholesale meat and vegetable prices, which negatively impacts the bottom line of Sandwich Island, the lack of change might be surprising to some consumers.

“A few years ago, beef was $1.75 per pound,” Wu said. “Now beef costs $3.20 per pound. And the same with salmon. We paid $23 per pound of salmon last week, but I remember when we paid $15 per pound.”

When vegetables aren’t in season or when the weather is colder than usual and farmers struggle to keep up with demand, prices skyrocket. More importantly, prices rarely go down.

“The price of vegetables, in particular, seems to always be going up,” said Wu. “If it ever goes down, it never goes down too much.”

The fear of change, the impact of the recession and the idea of not having a job when USC begins to tear down the University Village constantly weigh on Wu.

“My mind is sharp, my memory is good and I think I can work at least 10 more years, but at my age, no one wants to hire me,” Wu said. “It’s very difficult to find a job and though I’d love to keep the restaurant, it doesn’t seem likely.”

AnneLutfen – Online Retail in Turkey

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This past weekend, my cousin Roys Gureli was visiting from Istanbul, Turkey.  She is the founder and CEO of annelutfen.com, a baby/mother online retail store operating in Turkey.  She is a young entrepreneur, a Northwestern undergrad, and a recent graduate of Stanford MBA program. I took this is as an opportunity to learn more about her entrepreneurship journey, and so we started our interview.

“Before attending Stanford, I had a prestigious job working with the Borusan Group – specialized in logistics and energy – in  Turkey.  After graduating, I knew I had to build something of my own and I started to look into markets, see what was missing in Turkey. Soon I realized there wasn’t even one online retail market on baby and mother products,” says Roys. AnneLutfen is now one of the fastest growing online retailers in Turkey. The company has 25 investors, including Agah Ugur and Jaclyn Shnau.

AnneLutfen differentiates itself from its competitors through fast delivery, good customer service (live chat, 10 min. response frame on social media), and advanced technology.  Roys proudly says they have the biggest mother/baby selection in Turkey, and they give great importance in online product descriptions, videos, and comments. They’re also very active on social media, something other Turkish companies haven’t yet picked up on. She says they regularly give away free gifts through twitter and Facebook, and have Instagram competitions to create hype for the website.

Established in 2011 AnneLutfen entered the fastest growing market in Europe: Turkish economy expanded by 9.2% in 2010, and 8.5 percent in 2011. The company also entered a market where baby/mother retail was worth $6 billion and only %1 was online at the time. “Compared to the United States average of 10%, I realized this was the market to grow in. Even after 3 years, I believe the market has still not reached its maximum. Slowly, with offline customers switching their habits to online, there will be huge growth in e-commerce in the next five years in Turkey,” says Roys.

When I asked Roys about how she would describe their change in market percentage and sales since they first launched AnneLutfen, she said that in their first year they developed the product base for their website and perfected their service levels. She says considering the importance Turkish people give on people relations and communication, they knew they had to achieve excellence in customer service if they wanted to be the best in the market. She believes this is one of the biggest reasons they were able to grow 11 times more in only 12 months. Roys says their business is not as highly affected from political crises or the economy as much as other businesses, and gives the example that they grew 40% during Gezi protests, a major uprising in Turkey against the current government that negatively affected most businesses.

Although AnneLutfen was not affected majorly by the recent crisis, Roys thinks customer confidence index is the economic data that affects their business the most. “Baby and mother retail does not get affected by crisis, but political instability and currency fluctuations affects customers spending habits. People spend more carefully in unstable environments.”Roys tells me that in order to survive the crisis in the past years, they focused on growing their sales team and support teams, and promoted their marketing head to be the merchandising head in order to cut on costs and have a better marketing plan with the suppliers.

When I asked about their biggest challenges, she responds firmly: getting new investments. “ E-commerce requires a lot of capital before the company scales and becomes cash flow positive, therefore the investing environment in Turkey is very important. AnneLutfen has been growing with crowd-funding. We have 47 different angel investors in the company, 80% of which are foreigners, and it has been challenging to get those,” she continues by saying that foreign angel investors want to invest in Turkey since it’s a fast growing market, but they want to limit their exposure with a minimum investment amount, and that since Turks are new to angel investing, their appetite to invest are less than foreigners.

Finally, Roys says that there are always new entries to the market, but it takes time to build relationships with suppliers and develop a large product base. “The market is very big; we are the only large player so there’s always room for more players.” However, she says that for now, since they don’t have competition, they’re able to maintain their prices: “ We are a full price website, but every day we have special offers on different products. Although offers definitely induce sales, most parents are price-agnostic, so discounts are not a must in our business.”

 

 

 

This Is It!

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Fairbanks_and_Chaplin,_Wall_Street_Rally,_New_York_Times,_1918Welcome Money, Markets & Media Class.

This is the new home for all your work. Take a look at the stories your classmates have filed, leave a comment and look at comments they might have left for you.