Don't Mention the R-Word

Will McInnes has another interesting post today (“Don’t mention the economy”). It got me thinking about how careful many are “not talking the economy into a recession”.

Using InfluenceMonitor I had a look at the debate surrounding the UK economy.

Figure 1 (below) shows how frequent a number of issues appear in the debate on the UK Economy. (Normally referred to as the ‘Share-of-Buzz’).

Notice the increased focus on the “recession” from October to January, followed by a very small drop.

At the same time, the focus on “slowdown” is mostly constant.

Because the Share-of-Buzz is unadjusted for influence (all voices count the same) the picture closely mirrors the debate among ‘the general public’.

Now, notice Figure 2 (below). It shows the Share-of-Influence of the same issues. Because this metric is adjusted for influence it a closer depiction of the debate among the top influencers including the influential media.

Notice how the decline in the debate on “Recession” is followed by a corresponding increase in the use of “Slowdown”.

It’s almost like some omnipresent voice said “Don’t mention the ‘R-word’ – the safer word is ‘slowdown’”.

I am sceptical to what extent you can avoid a recession by not talking about it. You may be able to postpone it a short while, but if your economy is not sustainable, you will be hit sooner or later. The market forces will (thankfully) always catch up.

It may be telling that the “optimism” element has all but disappeared from the influence adjusted debate on the UK Economy.

UBS takes the attention away from Bear Stearns

I was looking at the debate on the problems surrounding the subprime lending crisis in our InfluenceMonitor service today.

The figure below shows the share-of-influence(1) of a number of well known investment banking brands has in the online “subprime”-debate.



Notice how the share-of-influence of Bear Stearns and UBS seems to be correlated: Initially UBS was the brand in focus. In June however, Bear Sterns announced problems with some of their hedge funds. For a while it took the heat of UBS.

However from July and onwards the focus on UBS has been steadily growing while the interest in Bear Stearns has dropped almost correspondingly.

Interestingly Citygroup, Merrill Lynch, Morgan Stanley, ABN AMRO, Credit Suisse and Deutsche Bank mostly escape attention.

The focus on Goldman Sachs however seems to be growing.

(1)
Share-of-influence is calculated by measuring the share of earned coverage a brand gets in a particular context and then factoring in the measured, topical influence of each voice that discusses the brand. So, when the topic is "subprime" a mention in NY Times will count for roughly 50% more than a mention in CNN.com’s money section.

Halo 3 does the job for Xbox

We have previous (1, 2) written about how Nintendo’s Wii has outperformed Sony’s PS3 and indeed all other comparable games consoles.

Until now the focus has mostly been on the battle between Wii and PS3, but in recent months Microsoft’s Xbox has been making waves.

The figure below shows the relative share of buzz about the 6 major games console brands from June 1st to 23rd of September 2007.

Notice how the buzz levels of PS3 and Wii have been relatively steady while that of PS2 and GameCube has been declining.

Microsoft’s Xbox seems to be the only one with steady growth although it seems to be relatively small.

Tracking share-of-buzz is interesting because we know from research that share-of-buzz and share-of-market converges, so if the present trend continues, Xbox is on route to a small but steady increase in market share.

However, we also know that share-of-influence and market share normally converges faster so it is normally our preferred (main) variable when trying to predict future market share.

(The difference between share-of-buzz and share-of-influence is essentially that the latter includes a weighting of each mention according to the mentioning media’s measured topical influence. When calculating share-of-buzz, all mentions essentially counts the same.)

The figure below shows the development in each brands share-of-influence for the same period.

Notice how much more dramatic the picture looks: PS3 and Xbox are losing and gaining (respectively) share-of-influence much faster than the previous graph would indicate.

This would indicate at least two things: First of all, that the coverage of Xbox more often takes place in media with above average influence on the topic of “games consoles” and similar that the coverage of PS3 is usually in media with below average influence on this topic.

Second, we can predict that the increase in Xbox market share and the decrease of PS3’s similar will be more dramatic, both in terms of magnitude and speed, than the first graph would indicate.

A third observation might be that since Xbox’s increase seems to come at the expense of PS3’s, this might indicate that PS3 and Xbox are fighting for the same audience and are considered substitutes. Those who are considering buying a Wii are more likely to be choosing between buying a Wii and not buying a console at all. If this is true then part of Wii’s success is that it is enlarging the market for games consoles with new customer segments.

Now, we also know from research that if a brand has high share-of-positive-influence its market share and share-of-influence tend to converge even faster.

However, this just makes things even worse for PS3.

The graph below shows the development in sentiment or tone-of-voice of the articles/blogs/forums where each brand appeared in the relevant period.

We can see that Wii and Xbox are at a positive sloped angle indicating that the positive mentions (dramatically) outweigh the rest. PS3, on the other hand, is represented by a flatter curve indicating that the posts on this brand are more balanced (or neutral) and thus on average less positive than the two other main brands.

So this all leads to the question of why Xbox sale is performing so well.

The answer is likely to have several reasons, but look at the figure below that plots the change in debate on Halo 3 and the change in the debate on Xbox for the analysed period.

More specifically the figure shows the change in accumulated influence on a month-by-month basis for Halo 3 and Xbox.

Notice how the lines follow the same trend. In August there was an extraordinary large change in influence for Halo 3 but while it does pull up the debate on Xbox it doesn’t do so with the full force of the change.

The figure below gives a more precise picture of exactly how closely correlated the debates on the two brands (Halo 3 and Xbox) are.

The figure plots the % change in accumulated influence for Halo 3 along the x-axis and the similar change for Xbox along the y-axis. The line is a linear trend line showing the correlation coefficient to be 0.788 which indicates a strong correlation.

Whilst we haven’t proven a causal effect here I think it is at least intuitive to assume that it is Halo 3 that mainly causes the debate on Xbox and not the other way around (although some argument can be made for that).

But if we for a second assume that the causal effect is from Halo 3 to Xbox then we can take our analysis one step further.

We can see from the graph that the elasticity of the relationship is about 0.2 (0.171) indicating that if Microsoft is successful in generating a 1% change in the debate on Halo 3 they are likely to increase the accumulated influence of Xbox by 0.2%.

Because of the strong relationship between share-of-influence and share-of-market the above could be translated into monetary value if we had estimated the relationship between share-of-influence and share-of-market for these brands. However, I don’t currently have access to good market share data for games consoles, so it will have to wait for another day.