>> If you ask people in the street whether we need another Facebook, most would say no
Don't take this as a disagreement with your whole comment (it isn't), but one trap that people fall into is equating what people say they want with what they actually want - at least as expressed by what they are willing to pay for, which is what shareholders and VCs care about.
There was an article on HN a day or two ago about how asking people to bet on political propositions affects their stated beliefs - when there's no cost, people will happily spout whatever their favoured party's line is, but if you ask them to put their money where their mouth is, they will often skew away.
VCs are investing based on where they think people will actually put their money, not on where they say they will. If evidence is that people spend a lot of time social networks, AND evidence is that advertisers will pay money for web adverts to people, then it might follow that a new social network is a good investment.
The main issue as I see it is that as we use money as a proxy for value, we disproportionately weight the desires of the rich over those of the poor. A service for rich people (e.g. an online photo sharing website) doesn't need to produce much utility to be worth a lot of money, whereas a service for poor people (e.g. clean water for poor villages) can produce a lot of utility and still be worth little money.
VCs are investing based on where they think people will actually put their money, not on where they say they will. If evidence is that people spend a lot of time social networks, AND evidence is that advertisers will pay money for web adverts to people, then it might follow that a new social network is a good investment.
If VCs were funding companies which made solid profits from customers and were therefore able to pay the VCs a multiple out of that profit I'd find this argument that money talks more convincing. As it is it seems that value for internet companies is not based on revenue or even potential revenue.
This disconnect between the money invested and the money earned completely breaks the connection you talk of - customers willing to put their money where their mouth is. Someone in the chain is paying lots of money, but it certainly isn't the actual end users or customers of most startups - often they run at a loss for a substantial period, and then they have no way to turn their free readers/users into paying ones in sufficient numbers to support their valuation or the money put in. VCs really don't care about that though, as long as they are paid more than they put in - that can easily happen if the companies are bought by larger corporations like IBM or Yahoo in the mistaken belief that the customers can be converted - the question of revenue then becomes academic as the companies are folded into a larger parent and the actual value impossible to discern.
It's an interesting time to be alive and an interesting market to be working in, but I do find the distortions created by massively inflated valuations and companies built just to be sold on worrying. Forgive me though, I must stop wittering on HN and get back to work now :)
While I think you are right that there is a difference between what people say they want and what they actually want --
I would suggest that there is also a difference between what people actually want, and what people demonstrate with their behavior, what they actually do.
What people do is not neccesarily what they want either! For all sorts of reasons. Poor self-control, costs/risks (financial/social/psychological) to doing what you really want, etc.
Just becuase someone spends money on something doesn't actually mean that, in an ideal world, they want to be paying for it, or want it in their lives.
Very interesting. However, I think by differentiating what people "actually want" from what they do, you have made it completely inaccessible. How can we possibly find out what people actually want if it's different from both (1) what they say and (2) what they do? In other words, is there any way you can validate your thesis? I suspect you can't. You will have to fall back to what they say they want.
That's a good point too, I'll have to think about that.
The sorts of examples I was thinking of though, would be:
* Someone who wants/says they want everyone to be paid a living wage and are willing to pay somewhat more for products made by people earning such -- but still consistently buy the cheapest products, made in sweatshops.
(That one might be, in part, about a lack of trustworthy information?).
* Someone who wants/says they'd rather there be fewer McDonalds around and more healthy restaurants, but still spends lot of money at mccdonalds, and maybe not at an available healthy restaurant.
(lack of willpower?)
I think you are right about the, er, epistemilogical problems, but I think there are still some examples that make it pretty obvious that what people actually want is not always represented by their actions.
Or at least not always by their _purchase actions_. Maybe the larger point is that, contrary to certain religions, the market is not in fact a perfect aggregator of people's true desires. What is successful in the market is NOT always representative of people's true desires, for all sorts of reasons (including the obvious one that some people have more market power than others, so are better represented in 'the market' -- but that's just the very beginning of reasons).
This is insightful. Lack of information, lack of willpower (eg. laziness, addiction) and bad decision-making (for reasons such as cognitive biases, poor reasoning under uncertainty etc) can be reasons why actions may not be consistent with the real wants. I agree with your larger point.
Given this, as a business, one has a choice of focusing only on what you can get people to do (eg. cigarettes, farmville, tabloid journalism, in fact any business that exploits the above reasons) as opposed to focusing on what they truly want - even though we want people to act in a certainway. The first kind are the businesses which are generally considered "evil".
Your idea of wants differentiated from actions seems to be quite fruitful. I used to tell people "don't ask your customers, instead, observe their actions". Clearly, something more is required to make a non-evil business. Thanks for teaching me something new. :)
One possible way to validate your point is by asking people if they ever regret their actions. However, I think this isn't robust. Regretting my past action now doesn't mean that I didn't want it then.
>The main issue as I see it is that as we use money as a proxy for value, we disproportionately weight the desires of the rich over those of the poor. A service for rich people (e.g. an online photo sharing website) doesn't need to produce much utility to be worth a lot of money, whereas a service for poor people (e.g. clean water for poor villages) can produce a lot of utility and still be worth little money.
That is the essence of free markets. If you look up the "welfare theorem's" you will see that the free market promises to do precisely what you describe: maximize the weighted sum of individual utilities, where the wealthier individuals generally have higher weights.
Ultimately, it is in human nature to care more about oneself and one's family (and possibly other people who you consider to be part of your in-group) than others. The free market just happens to make this fact very stark. Each time I buy a coffee for myself instead of donating to a poor village, I cannot avoid the conclusion that I care more about my momentary happiness than whether someone in that village gets some avoidable disease.
People are willing to pay for Heroin because it scratches a chemical itch in our brains. People don't say they want heroin because they intellectually know it ruins their lives and does nothing positive for them.
There's a disconnect between what people want, what they want to want, and what they say they want. This seems to be universal to humans; the connection with capitalism is tenuous, at best.
> One trap that people fall into is equating what people say they want with what they actually want - at least as expressed by what they are willing to pay for
Another trap people fall into is equating what people are willing to pay for something, with the amount of value that's actually able to be captured in the market for that item.
The finance industry, say, is able to capture a lot of the value they create (some might say more than they create). Some other industries, less so.
Don't take this as a disagreement with your whole comment (it isn't), but one trap that people fall into is equating what people say they want with what they actually want - at least as expressed by what they are willing to pay for, which is what shareholders and VCs care about.
There was an article on HN a day or two ago about how asking people to bet on political propositions affects their stated beliefs - when there's no cost, people will happily spout whatever their favoured party's line is, but if you ask them to put their money where their mouth is, they will often skew away.
VCs are investing based on where they think people will actually put their money, not on where they say they will. If evidence is that people spend a lot of time social networks, AND evidence is that advertisers will pay money for web adverts to people, then it might follow that a new social network is a good investment.
The main issue as I see it is that as we use money as a proxy for value, we disproportionately weight the desires of the rich over those of the poor. A service for rich people (e.g. an online photo sharing website) doesn't need to produce much utility to be worth a lot of money, whereas a service for poor people (e.g. clean water for poor villages) can produce a lot of utility and still be worth little money.