About Me 0049: Help Making Money

Pinger’s disruptive Textfree service is heading to Europe, and it’s doing it with the help of hottest buzzword around: gamification.

Pinger has managed to build a huge userbase in the United States by offering free text messaging without any major catches: users are given their own, real phone numbers, and they can send and receive text messages with any phone. And, most important — the app works on the iPod touch, which doesn’t otherwise have SMS functionality built-in. Pinger also launched a free voice calling service in December but lets users make free phone calls and earn minutes by completing basic offers. Pinger makes money off of these offers and by running ads in its mobile apps— to the tune of billions of impressions a month.

But the SMS situation in Europe makes international expansion a difficult affair. Cofounder Greg Woock explains that in the US, when a text message is exchanged both the sender and recipient ‘burn’ one of their texts — in other words, they’re both paying for it. Things are different in Europe, where only the sender pays for the text. The recipient pays nothing, but the carrier of the recipient does pay the sender’s carrier a few Euro cents. Yes, it’s a little confusing.

Woock says that this model doesn’t normally lend itself well to a free texting model, because Pinger could wind up owing carriers boatloads of cash if its users are receiving more texts than they’re sending. We’re talking many many millions of dollars owed if it could build a userbase as sizable as the one they have in the US.

But Pinger came up with as solution: it’s going to use game mechanics to ensure that users are sending and receiving the same number of text messages. That way Pinger will be paying European carriers the same amount the carriers are paying Pinger. The net result: Pinger can run a texting service that’s free of charge, and it can place ads on top of it through its mobile applications, the same way it has in the US. In theory Pinger could actually use the game mechanics to ensure users are sending more texts then they’re receiving, which would wind up with Pinger actually making money from the carriers.

The game mechanics themselves sound pretty straightforward: users are presented with a meter that’s at 100% when you’ve sent and received an equal number of text messages. If you send a message, that percentage drops a bit. Receive one, and it goes up. Pretty easy.

But what happens when you’ve dropped to 40% and are worried about being able to send more texts? The trick, Woock explains, is to tap into your social graph (he says the company consulted with Zygna for advice on this front). Textfree will prompt users to post updates to their Facebook News Feed inviting their friends to send them text messages, which in turn will boost their meter. I’d imagine this would be a little weird to see initially (“hey guys, please send me text messages!”) but no more so than a Zynga game that prompts you to ask your friend for helping watering some virtual plants.

I asked Woock how the European carriers felt about the model. He says that all of the carriers they’ve spoken too have been very supportive and see an opportunity for incremental revenue. And he adds that Pinger has applied for patents on the meter system that drives the equal flow of texting.

Pinger’s mobile app will be launching in a small test in Germany in the coming weeks (they want to make sure the model works). Assuming that goes well, it will be expanding throughout Europe in the near future.

In the lower portion of this chart, there is a modified sine wave pattern to help visualize the behavior of the cycle in the SP500's price movements. The market was following this cycle pattern very nicely up until late 2005, and then it jumped onto a new schedule that just happened to be about a half cycle length off of the original schedule.

So with the knowledge that a phase shift was a possibility with this cycle, it was hard to understand what was happening in early 2008. And this illustrates one of the big pitfalls with doing any sort of cycle analysis: cycles can change, and so while they may give us nice predictions of what should happen at some point in the future, there is no guarantee that the past behavior will remain in effect in the future.

It just so happens that 2007 was when this cycle changed, and it was also the year that the uptick rule for shorting stocks went away. It is hard to understand why a rule change like this could make a difference on a market cycle, but I have an explanation that may help.

Imagine a wave pool in a laboratory, where scientists create waves to study how they travel through the water. Now imagine that you remove all of the water, and replace it with 30-weight motor oil. Because the oil is lighter but more viscous than the water, the behavior of waves in that wave pool would understandably be different.

So thinking of the financial markets, if the regulators were to do something that changes the "viscosity of money", making it flow more or less easily, then we would likely see changes in the way that waves propagate through that medium as well. Such changes might include restrictions on shorting stocks, the advent of money market funds, the introduction of stock index futures and options, leveraged ETFs, etc. All of these affect the ease with which money can flow into and through the stock market.

Now, if you look back at the top chart, you can see that the blue numbers are getting bigger again lately. Those numbers represent the time period between the major lows of this cycle (formerly known as 9-month). The lowest number was 159 trading days in early 2008, and it has climbed back all the way up to 177 as of the latest major cycle price low. It may be that after the initial shock, this cycle is working on getting back up to is "natural" frequency. Or it may be that 159 and 177 are just the widest extremes of a new range of cycle periods that average more like 168 trading days, and that this is the new natural frequency. We won't know for sure for several more cycles' worth of time, and that's the big problem with this analytical technique.

For what it's worth, and to help your planning, 159 to 177 trading days from the most recent major cycle low equates to a timeframe of Oct. 31 to Nov. 25, 2011.

About Me 0049

Friday 29 July 2011

Help Making Money

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