Alchemists tried in vain to turn common metals into gold. They failed because we human beings cannot change the laws of physics. In modern day, we can turn common metals into gold with a particle accelerator, but it’s not economical to do so and we are simply using, rather than changing, the laws of physics.
Contemplating the alchemists‘ dream, we find a deeper purpose. Their goal was not just to turn common metals into gold: it was to turn common materials into wealth. If this could be done, untold of prosperity would be within reach. Their struggle has not been lost by time; in fact, their dream has been partially realized in financial marketing. There is a very real “alchemy of web analytics”.
B.F. Skinner discovered that behavior is largely a function of environment. Change environment, and you change behavior. A website is an environment, and the symbols used on websites shape behavior in powerful and surprising ways. By changing web symbols, we were recently able to increase a client’s sales by 67% in just a few weeks. With the client’s consent, we hope to publish a case study soon and share what we learned.
Cupo Dei Capi 
This post is inspired by George Soros’ book, “The Alchemy of Finance”. Soros made a billion dollars in just 24 hours by collapsing the value of the British Pound in 1992. Some economists may call this an extreme example of “price discovery”. Whether or not such gains are ethical is something you, and everyone else, need to decide. In “The Open Society” and other works, Soros himself calls for reform while continuing to exploit our flawed global economy.
When I discovered that a single man could so dramatically affect the fate of millions of citizens in a first world country, I was stunned. Finance became a hobby of mine that soon turned into an obsession. In the last couple years, I’ve invested uncounted hours trying to comprehend the occult (Latin for “secret”) knowledge of finance.
Before moving on, it’s important to see what gains of a billion dollars in 24 hours really mean. For that end, gaze upon this graphic: Here, you see a silhouette of the average American male (5’ 9.5”). You also see the Great Pyramid of Giza. The man’s height represents forty years of median family income. The Pyramid represents 13% of Soros’ single day profit.
When I tried to actually show the man and pyramid to proper scale, the man became invisible. Our computers are better than ever, but fall well short of being able to display the true proportions of this historical financial event. If you aren’t astounded, you aren’t paying attention.
The Alchemy of FinanceIn “The Alchemy of Finance”, Soros refutes the foundation of neoclassical economic theory and shows how a new science can be used to transfer wealth. When Soros actively ran his Quantum Fund, he achieved legendary gains: 35% annually. If you had invested $100K in 1969 and reinvested all the dividends, you would have $130MM by 1994.
Compound interest is one of the most powerful and misunderstood forces on our planet.
“The Alchemy of Finance” explores two central theories to Soros’ massive gains.
- Reflexivity
- Markets as a mechanism for hypothesis testing
Both of these theories transfer directly to The Alchemy of Web Analytics.
Reflexivity in a nutshell
This is the theory of reflexivity:
Cognition creates reality via a feedback loop. 
Take the housing crisis as an example.
For the bankers:
- Perception:
- Alan Greenspan thought we needed low interest rates to support the economy after 9/11.
- Reality:
- He set historically low interest rates. Banks pushed cheap money into the economy as loans. Bankers were incentivized at all levels to sell as much debt as possible.
For the people:
- Perception:
- Consumers could take on more debt, and used their homes as speculative ATMs
- Reality:
- Housing prices massively inflated, and as people perceived rising prices they took out even larger loans. Yet very little real wealth (distinct from paper values) was created. Debts that can’t be paid, won’t be paid, and the economy collapsed as a result.
How does all this apply to web analytics? Well, the web is a two way feedback system by its very nature. In old media, like newspapers and TVs, interaction was one way. Messages were pushed onto the masses with limited feedback mechanisms.
On the web, we know every click, every keystroke, every impression, every purchase, every demographic, etc. From this wealth of data, a skilled observer can understand patterns, adjust the symbolic nature of web pages, and incite a desired response.
Markets as a mechanism for hypothesis testing
The other key to Soros’ success was his perceptual framework. He saw market places as a mechanism for testing hypothesis. In other words, he applied the scientific method to investment strategies.
Here’s how it works.
Ask a question:
- “What should I invest in to maximize the gains of my dollars?”
Do research:
- “Hmm, well it looks like I should get out of dollars. China’s selling off Treasuries. China and Brazil are trading off the dollar system. The IMF’s chief economist has called for an end to the dollar as a reserve currency. The US has record levels of debt and will need to double taxes or inflate.”
Construct a hypothesis:
- “The dollar will dramatically fall in value relative to foreign assets and hard currencies.”
Do an experiment:
- “Ok, I’ve converted my dollars to yuan and purchased stocks. I expect to benefit from currency appreciation, asset appreciation, and dividend payments.”
Analyze your data:
- “My hypothesis was confirmed. I sold my bonds and bought back into dollars.”
Report your results:
- “I made ___% over 12 months.”
This same process is used for web analytics. There’s a slight difference, as you’re investing in influencing human behavior, but this difference is only a linguistic confusion.
Benjamin Franklin said “time is money”. Behavior occurs over time and determines the flow of money: behavior is also money. Web analytics is a powerful way to influence behavior: web analytics is money. If you don't believe it, watch this and learn how Obama was elected through the use of web analytics data.
To address the global financial collapse, Soros has created and funded the Institute for New Economic Thinking. The Institute’s website states:
“The Institute firmly believes in empowering the next generation, providing the proper guidance as we challenge outdated approaches with innovative and ethical economic strategy.
The Institute’s objective is to expand the conversation to create an open discussion for a wider range of people. Some would say that present day dialogue is closed and polarizing. We recognize the need for an environment that is nourished and supported by discourse, a discussion that spans a much wider spectrum of thinking and incorporates the insights of other intellectual disciplines in both the natural and social sciences.”
Well, it’s about damn time. For now, here’s my 2 cents. 
- “Everybody wants to live the life of kings and queens But nobody wants to stay and plow the fields Everybody wants to tell their neighbors how to live But nobody wants to listen to how they feel
- And it goes on and on and on and on and on. For a thousand years, a thousand years I say. And it goes on and on and on and on and on . What language are your tears, are your tears
- But what I got to say right now. Is love enough yeah, love enough yeah, love enough.. Or can you love some more
- A revolution never come with a warning. A revolution never sends you an omen. A revolution just arrived like the morning. Ring the alarm, we come to wake up the snoring”
-Michael Franti
Thank you for reading. I hope you have an inspired and prosperous 2011.
Keep the posts coming, they are always informative, and I need ideas for more books to read!
regards