Cnn Money Rss Feed

Empowering Collective Action through Tipping Points

Group action now has an easy and effective internet application. It has been made available by a business called The Point that was originally concieved to help facilitate social activism. The Point is a business that makes use of a flexible process that effectively manages risk. The Point can be used in various ways. It's first commercial iteration is a group buying company called GROUPON.

Since the advent of civilization, top down hierarchies have been the general rule and not the exception. Brutal dictators, monarchies, oligarchies, political philosophers, management theorists, CEO's and even Wall Street tycoons have all recognized this as inevitable, as sure as the law of the jungle where the Lion rules as a solitary king.

But to start with, this misplaced metaphor is a piece of fiction. Lions don't live in the jungle. They roam sparsely treed plains in the countryside. And it is not the Lion but swarms of Driver Ants, up to 50 million strong that are the true kings of the jungle. When they move they do so all at once, marching together, devouring everything in their way.

The Point

In 2007, an Internet application called The Point was created to better facilitate social change. This invention was seen by many as the next evolution in social networking. The business by the same name, The Point is founded by Andrew Mason, a Northwestern graduate who passed on graduate school at the University of Chicago to start this new venture. The move paid quick dividends in January of 2008, when The Point successfully raised $4.8 million from top tier venture capital firm New Enterprises Associates - quite a grab given the current tepid venture capital investing environment.

New Enterprise Associates has some very smart people with a long track record of making successful bets. They grasped the big idea contained in The Point: a belief that the Internet could shift the balance of power from institutions to individuals.

The Point methodology borrows from a concept known, not coincidentally, as the Tipping Point. Depending on the mode of science, this can mean related but somewhat different things. In physics, it denotes a change in equilibrium. In climatology, it is a point in when change becomes irreversible. In sociology, it is the moment when something unique becomes common. [1]

Thanks to Malcolm Gladwell, author of the bestseller of the same name, The Tipping Point, it is from sociology that a broader and more popular concept has emerged. "Tipping Points are levels at which the momentum of change becomes unstoppable." [2]

GROUPON

For businesses, unlike coupons that offer secure discounts and make no promises, GROUPON's Tipping Point process guarantees a certain number of people will buy as a result. The formula is simple, elegant, and clear: the discounted price of a product or service is guaranteed when "x" number of units is sold. "X" being the tipping point. When the project is "Tipped" you get a coupon to use within a specified time, creating a superior method to Tuangou, the Chinese swarm shopping trend whereby hundreds of customers often show up all at once at a storefront to negotiate discounts with the store owner or manager.

But while GROUPON has demonstrated quick success, deep pockets and first mover advantage, they possess no propriety technology or process that traditional technology company's valuation and market position has rested upon. Already there are GROUPON clones popping up, such as BuyWithMe, whose website, offering, and strategy is remarkably similar. And it remains to be seen if larger internet properties - Ebay, Yahoo, Amazon, MSN - will want to partner with Group On or one of its competitors. Or, when the market proves big enough, perhaps an Ebay or Yahoo may offer a similar service themselves. Whatever happens, GROUPON has clearly gained traction in a new space that has an enormous amount of room to grow.

New Vistas

As cool and exciting as saving $99.00 for the adrenaline rush of taking your first jump from 14, 000 feet, it is no comparison for the experience to be felt from the depth of the structural changes that are likely to follow. Historically, contemporary capitalism rested upon separation and isolation; that is, the separation of production from consumption and isolation of buyers from one another to create an atmosphere of competition. These tendencies were exacerbated by a media that operated one way, molding business processes and organizational hierarchies to seemingly immutable laws.

In this environment, information flowed from top to bottom and it was oftentimes producers rather than consumers that tended to collaborate, giving rise to rounds of consumer protectionism, first from industrial robber barons and later from mega corporations.

Web 1.0 caused a massive decrease in the cost of information but did not alter its flow. Business processes, like the tactics of social activists, were imported from the offline world online, without changing strategy.

However Web 2.0 (the read-write web) promises again to change everything. Information no longer flows one way. We can Twitter a message that instantly ends up on CNN to be seen all over the world. Or author an article as a Google Knol like this one and distribute to search engines and RSS feeds to be potentially viewed everywhere there are internet connections. We can post a video on You Tube on about just about anything. With a little effort, we can have hundreds of new friends keep up with on My Space, Bebo, or Facebook. In short, for the first time we can all be seen and heard.

But can we be directed toward anything meaningful?

To date, the Tipping Point methodology expressed by The Point represents the best approach towards organizing masses of men and women toward some meaningful goal and is the best application towards communicating goals that direct humans to act all at once, as if a swarm.

New Business Formation

Much that can be said about the risks of social activism we can say of the risk of new business formation. From the standpoint of risk, the Social Activist and Entrepreneur are a lot alike; in fact, one could say they are next of kin.

The Point has demonstrated that more risk adverse social actions can take place by setting and reaching Tipping Points, prior to individual activists having to take action. The same results, I believe, can be achieved on behalf of (and sometimes in place of) the Entrepreneur.

For example, if I wanted to start a new business (particularly a small business not capable of qualifying for a loan that offered something new or original), I would first have to put my own time and money at work, set up shop and begin to attract customers. In time I would find out if there was enough demand for my product or service.

Today, using Tipping Point methodology, I could first see if I could get some specified number customers to buy my product or service at a specified price - a price that by my own or others (analysts, investors) projections I would need to make my business viable. When this tipping point is reached, I could then open my doors for business, reversing the order of things, creating a whole new path of dependency (literally standing the conventional tract of new business formation on its head).

Let's say you love coffee and wanted a Starbucks on an empty corner of a strip center near your residence. You could write Starbucks a letter, telling them of your interest and wait patiently for them to respond. Or, you could post your idea on the The Point and with a target of, say, 500 serious coffee drinkers like yourself, willing to step up and commit to buying a cup of four dollar coffee three times per week. Now that might even get Starbucks attention.

But what if you wanted a coffee shop close by but cared little for Starbucks. You might approach a local coffee shop owner or another branded coffee shop chain to see what sort commitment you would need from potential customers for them to open a business near you. But in return for financial commitments by potential customers that are triggered only if the shop opens, you would want to secure discounts. Even more, for yourself, who knows, as the organizer of such a project, you might even secure an ownership interest or at least some free coffee, should the tipping point be reached and the nearby coffeeshop become a reality.

With regard to new product innovation, let's say I have a solar powered hovercraft design that I want to market, but I lack the funds to build it and my prototype needs some further investment (see pictured to the lower right). My banker and some venture capitalists are interested, but they need proof that there is a market for my vehicle before they will loan or invest any money.

Here The Point could be employed to test demand for the vehicle. If I could build it, how many people would buy it at a specified price? How many commitments would I need to break even or make a profit? My Tipping Point might be the number of vehicles needed to be pre-sold to secure financing from a bank or through venture capital. This is how pre-construction condos are sold, from plans and specs and a promise to build. Why not solar powered hovercrafts?

The Point, applied to commerce, holds the promise to revolutionize existing business practices and spur new business formation by reducing execution risk, lowering the cost of capital.

The popular X Prize and has similar methodology as The Point. Money in the form of prize is awarded when a certain objective is achieved. In the case of the X Prize, a goal was reached when a private venture achieved space flight on October 4, 2004.

"An X PRIZE is a $10 million+ award given to the first team to achieve a specific goal, set by the X PRIZE Foundation, which has the potential to benefit humanity. Rather than awarding money to honor past achievements or directly funding research, an X PRIZE incites innovation by tapping into our competitive and entrepreneurial spirits.

The X PRIZE Foundation began a revolution in private spaceflight with the $10 million Ansari X PRIZE. On October 4, 2004, the Mojave Aerospace Ventures team, led by famed aircraft designer Burt Rutan and financed by Microsoft co-founder Paul Allen, captured the Ansari X PRIZE.

The Tipping Point for Timeshares and Fractionals

My own path toward the appropriation of Tipping Point methodology started about two and half years ago when I began researching fractional interest vacation homes. Fractionals, like Timeshares, suffered from high sales and marketing costs and egregious mark ups over product costs (sales and marketing typically represent over 40% of consumer costs for Timeshares with final costs reaching two and one half actual product costs). [4]

It seemed unusual to me was that if six or eight people went in together to buy a suitable vacation home and approached an expert attorney and fractionalized it, they could avoid the mark up costs (as high as 75%) charged by fractional interest promoters and developers. Aside from the force of habit in how we buy things, what was keeping six or eight people from banding together to save money?

A solution appeared simple enough. One merely had to aggregate commitments to buy until there were enough to produce a complete sale. There was some complexity to the transaction, but the enormous amount of savings would provide plenty of motivation to work through the details. So I founded a firm that offered a more cost effective way to structure and close fractional real estate transactions and built a website @ www.fractionalmarkets.com.

But another issue quickly came into focus. To be successful at this time, there was a need to reduce competition from other offerings and concentrate efforts on a single asset over a limited amount of time. There was the need for a new type of auction.

Traditional auctions rested on competition from buyers that act in isolation. A new auction, I gathered, could be created when buyers collaborated to combine their purchasing power to own items that were typically beyond their reach and often impractical as sole owners (Luxury Vacation Homes, Aircraft, Yachts, etc.) or were oftentimes beyond their control (Sports Teams, Businesses, Commercial Real Estate). Here the Tipping Point would occur when enough fractional shares were reserved to complete the sale.

Targets were all or nothing. So it was group buying with a twist; a contingency, based on achieving a specified goal, a complete sale.

So if you were GROUPON, why not target a timeshare operator with a massive group buy to secure equally massive discounts? Or buy a boutique hotel on the beach and convert to fractional and turn over management to a reputable operator?

In time perhaps they will, or someday somebody will. Historically, marketing costs having been simply too high to make them attractive investments. But they remain attractive to buyers for other reasons, as alternatives to expensive hotels and the costs of whole ownership.

Single Family Homes

I found cooperation in ideological organizations called Intentional Communities and specific housing configurations known as Co-Housing. Both forms of ownership emphasized connectedness and community and possessed elements of group buying. But they lacked the broader of the appeal of the largest groups of all: those of us that simply want to save money.

Currently, the privilege of paying wholesale for the biggest purchase you will ever make has remained beyond the reach of consumers. This to me is troubling when considering that we put a man on the moon 40 years ago and but cannot create a wholesale model for housing.

Sure, there are cultural forces to overcome (largely the separation and isolation thing). Nevertheless, it seems easy enough: Arrive at a discounted price for the purchase of a specific condo project or tract home community of near identical homes (not hard to find) and arrive at a discounted price to buy, provided "x" number of units are sold.

For Single Family Condos or Tract Homes it is a matter of aggregating the necessary buyers to reaching a Tipping Point, the purchase of an entire subdivision (small or large) or project at a potentially massive discount. Discounts passed to buyers and a secondary market is formed for buyers to exchange units prior to close. Just be sure to pre-approve all buyers with proofed funds and loan commitments. And take plenty of back up contracts.

Or, build the national reach and monster user base of a company like GROUPON and then approach a national builder like KB, Lennar or even Toll Brothers for a discount based a specific number of sales.

(see link to article, An Alternative Approach to Buying a Home or Investing in Real Estate).

Sports Teams and Corporations

* for a better view, click on the article above

MyFootballClub has set a model for what could be the takeover of existing corporations by member owners, changing the effective control of even major corporations. Imagine businesses and eventually large corporations purchased and managed in a similar fashion. Keep in mind there numerous public corporations (such as regional and commuter airlines) that are as inexpensive right now as California beachfront mansions. Houston based Express Jet (XJT) operates 214 planes and flies 151 destinations while commanding a market cap of only $39 million dollars.

Related Articles by Author