On today’s show we are examining the difference between two prefixes
A prefix is the start of a word that modifies the meaning of a word. In the word anti-septic, anti is the prefix that changes the meaning of the word septic.
In today’s show we’re examine the prefixes Inter and Extra. These prefixes are used to create the word interpolate and the word extrapolate. Both involve predicting a point on a graph. But the math behind these two is different.
When you take an existing set of data points and you lack data in the middle of your data set, you can use interpolation to determine where on the graph this data point would reside. It generally results in a pretty good prediction of the outcome. For example, if you know what your profit was a 5% vacancy and at 10% vacancy, and you now have 8% vacancy, you can predict with a high degree of accuracy what the property performance will be at 8% vacancy. You have good data on either side of 8% with which to predict what the result will be at 8%.
Mathematically, interpolating is pretty safe.
Extrapolating on the other hand is fraught with risks. Take the example of Social media side tumblr. At the peak, they had more users than Instagram and Pinterest. In 2013, they sold to Yahoo for $1.1B.
They were just sold to the owners of WordPress for less than the price of a modest home in silicon valley.
The problem isn’t that Tumblr is only worth a couple of million dollars today.
Tumblr was inherently ill-suited to advertising. Today, Google and Facebook suck up 57% of all the digital ad spending. Back in 2013, social media advertising was not well understood, even though most financial analysts knew that the path to revenue would be through advertising.
Tumblr’s billion dollar plus valuation was based on a forward looking financial model of the kind of income it might be able to generate in the future.
That meant that the valuation was based on another metric which doesn’t correlate directly to revenue. In those days, the number of users or eye-balls was the metric of choice. But you can’t extrapolate eyeballs into dollars directly.
Interpolation is using past and present day information to calculate things in the present. Extrapolation involves predicting the future.