Santander profits dip in tandem with Spanish employment

Santander, Spain's largest bank, has reported a 26% drop in Q1 profits owing to weak lending in its home market.

In tandem, Spain's Q1 unemployment rose to 27.2% - the highest in 37 years.

This leads to an interesting question, "what is the extent of correlation between a nation's unemployment and banks' profits?"

Prima facie & commonsense-wise, it is clear that the fortunes of banks be intricately tied to the national economy (employment is a reliable indicator of the economy's health)

However, the extent of interdependence is a question mark, at least to me!

This is because most of the banks have now global footprint and their growths are not as closely tied to their home markets as in the past.

A prime example is Citi which is now drawing bulk of its earnings from its international businesses.

Even in the present case, Santander's profits were adversely affected by its lackluster performance in Brazil & the UK.

Dear readers, have you come across any scholarly treatment of this problem? If so, do share the details in the comments...

Can India's demographics make her a BRIC leader?

The Wall Street Journal has published excerpts from a chat with Jim O'Neill, the noted Economist who identified the potential of BRIC (Brazil, Russia, India & China) countries more than a decade ago.

There are quite a few interesting insights from Jim; however, I will specifically focus on one of them.

Change in pecking order

Jim predicts that India could be the fastest-growing BRIC economy over the next decade.

He believes that India can grow at 10% or more, provided she embraces foreign direct investments wholeheartedly.

This is a very interesting &, slightly, counter-intuitive forecast!

India has grown the least among the 4 nations over the last 11 years (when Jim coined the term).

At 299%, India's growth is well behind Brazil (337%), China (523%) & Russia (537%).

Demographic sweet spot

The hidden arsenal that could power India's growth is her incredible demographics.

As per Goldman's 2010 report, "India's Rising Labour Force", India is projected to add a whopping 110 million workers between 2011 and 2020!

This is more than what the U.S., China, Russia and Japan will add combined!

To look at it from another angle, India will add a million people to the job market every month for 10 years!

Further, this growth will be mostly driven by people in their 30s and 40s who have more disposable income.

Indeed, India's population pyramid beautifully highlights this demographic advantage:

Source: The World Factbook, CIA 

Double-edged sword

Of course, it is easy to get carried away with the notion that India's huge population will work to her advantage rather than the other way round!

Many commentators have rightly pointed out that the quality of labor force is equally important as the quantity.

This is especially so in case of India where, historically, the Government has not paid as much attention on education as it should have.

It reflects poorly on India's policymakers that the right to (primary) education became a fundamental right only in 2010!

Even then, as Firstpost reports, the state of primary education in India is quite shocking. In 2012, only about 30% of Standard 3 students could read a Standard 1 text!

Higher-education students don't fare well either. In fact, they seem to be even more worse-off than their primary counterparts.

Aspiring Minds, a leading Indian employability solutions company, reported the following statistics for engineers and MBAs who graduated in 2011-12:

• Only 2.68% of 55,000 engineering graduates tested were ready-to-deploy for IT jobs (report)
• Less than 10% of 32,000 MBAs examined were employable in a functional role in HR, marketing or finance

Other factors

Even assuming that India successfully addresses the educational challenges, there are at least two more, internal, factors that could derail the Indian juggernaut:

• Foreign direct investment - Indians are neither able to reject it outright nor accept it wholeheartedly and the position is unlikely to change in foreseeable future
• Divided polity - a weak central government surrounded by a plethora of strong regional parties continues to be a recipe for policy paralysis

Conclusion

To conclude, the ability of India to seize the momentum is not guaranteed.

Jim himself put it very nicely, "I have learned that with India, you can't be overly hopeful because the situation there is so complex."

Facebook buys Atlas, Microsoft's ad-campaign service

Facebook has bought out Atlas Advertiser Suite from Microsoft to help its advertisers better measure their campaign performances.

Companies use Atlas tools to choose and place ads on websites and monitor their effectiveness.

Facebook & its advertisers will now be able to measure campaign performance not only on its own service but also on other sites around the Web.

This data can certainly help the advertisers improve their advertising campaigns. It can also be leveraged by Facebook to demonstrate the superiority of their platform over other sites!

This acquisition complements Facebook Exchange, the social network's real-time advertising platform.

Facebook Exchange and Atlas can prove a potent combination in challenging the hegemony of Google on the display advertising business.

To me, this means that Facebook is finally getting its advertising strategy in place.

It has to, considering that its revenue growth has been slowing for four consecutive year.

Microsoft accepts defeat

While it is a clear win for Facebook, unfortunately, the same can't be said about its strategic partner.

Microsoft had been forced to write down almost the entire $6.3 billion that it spent to acquire AQuantive Inc. (developers of Alas) in 2007.

In a way, Microsoft is admitting defeat against Google by selling the technology after fully writing-down its value.

Its only consolation is that Facebook will, hopefully, fare better in hampering (if not defeating) its arch rival, Google.

One could argue, though, that it is a pretty costly consolation!

Microsoft will, of course, continue to use Atlas for its own campaign performance measurements.

Footnote

Hopefully, Windows users will no longer have to tolerate the notorious atdmt.com tracking cookie that used to be loaded with the use of any Live service and refused to go away!

Article inspiration: Bloomberg

Facebook's real-time advertising push: a double-edged sword!

Facebook Exchange, the social network's real-time advertising platform, seems to have got good traction with the advertisers.

It has already signed-up 1,300+ customers over the last 5 months and is estimated to contribute nearly 7% of the company's projected 2013 revenue ($6.68 billion).

Impressively, some of these advertisers are already spending tens of thousands of dollars a day on real-time bidding. The spending is set to increase to around hundred thousands dollars a day in the near future!

Encouraged by these promising signs, Facebook is planning to roll out the tool across Asia & Latin America in the near future.


What Facebook Exchange Does

Real-time bidding, in a nutshell!

What this means is that the advertisers bid to automatically place their ads in milliseconds (as a Facebook user's page is refreshed) based on the user's browsing habits.

For example, I will be shown travel-related ads if I visit travel sites before logging-in or while logged-in to my Facebook account.

This real-time advertising increases the conversion chance, i.e, the user is more likely to click on such ads as opposed to the traditional display ads.


Business Imperative

It is a common knowledge that Facebook is under tremendous pressure to show numbers that justify its stratospheric IPO valuation.

Traditionally, Facebook derives a majority of its revenues by displaying ads using information gleaned from user profiles.

Unfortunately, Facebook's huge user base (1.1 billion, per its claim) makes it difficult to keep on signing new users.

In fact, there have been many studies that show that Facebook's user growth is decelerating.

Therefore, it is natural that Facebook will look at ways & means to generate more revenues from its existing users.


Technological Challenge

Facebook Exchange's biggest bug-bear could be a user backlash on privacy concerns.

The system uses cookies (on users' machines) to track and share anonymous data about where a person has spent time online.

This, hypothetically, allows Facebook to not only track its users in a real-time basis but also to profile them is much greater detail.

It is natural that privacy advocates  are concerned!

The company claims to address their concerns by the following safeguards:

• It keeps the identities of its users anonymous and 
• It does not share the users' data with ad buyers

Unfortunately, history is against Facebook in these matters!


Business Challenge

Google is the gorilla in the room!

Since its DoubleClick acquisition 4 years ago, Google has come to dominate the online ad-exchange market with a share of at least 50 percent!

However, I believe the bigger challenge for Facebook is the increasing user dis-engagement.

More & more users report of having had too much of Facebook and deciding to reduce the time spent on the site.

In fact, Tumblr seems to have emerged as the social network of choice for the new generation of American teenagers!

These factors can very quickly reduce the interest of advertisers in Facebook Exchange.


Conclusion

Facebook is in a classic situation of "damned if you do, damned if you don't".

It has to try to keep users, advertisers and investors happy at the same time!

This will never be easy, but it has no choice...

Acknowledgement
This post is based on Bloomberg article, "Facebook Ads Based on Browsing Challenge Google"

Banc-it by BankersLab uses gamification to train bankers!

BusinessWire is reporting that BankersLab® has gamified the training of retail bankers (esp. lending professionals) by launching a mobile learning app!

The app, Banc-it™, lets the players test their knowledge about credit scoring.

It uses quiz levels to reinforce the technical concepts and terminology related to credit scoring data, usage, model development and monitoring.

Banc-it™ is designed to support ScoringLab® and CreditLab® simulation-based training courses, and can also be used independently.

The developers are mum about whether the players can change the gaudy color scheme, though!

This news comes more than a year after my post on gamification of banking. I had then discussed how banks are leveraging the concepts of social games to help their customers better manage their money.

PS: In a further sign of the rise of the Android platform, the app is available both on iTunes and Google Play!