Saturday, October 11, 2003
This paper by Shiller is like a very, very cool short history of post-efficient markets finance. Essential reading if you're into this kind of thing.
SSRN's Colossal Stupidity:
I cannot believe that SSRN started charging 5 bucks to download papers. This is completely absurd. When did this start happening!?
God. I am losing faith in the innovation capability of the US fast
. Academics trade knowledge for freedom. Academic knowledge must be in the public domain.
Ok, check this out:
"You should expect a free download if you are a subscriber, a corporate associate of the NBER, or a resident of nearly any developing country or transition economy
This is the SO STUPID. So students in the States can't read it, but students in Nigeria can? Pensioners in the States can't read it, but the president of Burma can? Great incentives - especially from a bunch of ECONOMISTS!
Dammit, all I wanted to do was read an a 15 year old paper about asymmetric information. I can get it for free from one of the profs' sites - in Israel. But if I try to get it from an American site - even one that's funded by me
, a taxpayer, I have to pay (nber.org).
Maybe that's why Israel is innovating right now and America isn't - we're too busy trying to make a buck every which way we can, and destroying critical resources and capabilities in the process.
Friday, October 10, 2003
More on the PSX (with pic). Nice looking machine. The girl's not bad either.
Cinemas are going to start screening live events. Brilliant. This model really understands the changing economics of media, and exploits it beautifully.
Why mobiles are successful in Asia, and how people use them differently there.
"'We can learn lessons from why the mobile phone has been successful in Asia...
It is relatively robust, relatively small, you don't need a desk, you don't need to be a in particular place.
And you don't have to be literate to use them or speak English. These are all constraints when it comes to operating a computer,' she explains".
What's equally interesting is that she's an ethnographer that works for Intel. This is the kind of comparative advantage I keep saying we have, and places like India and China don't. The management challenge for the next century will be about how to really harness it.
Economist talks about the rebirth of tech stocks. Apparently SoftBank is up 500% from it's low...
They also say "In the past 12 months, one-third of the world's tech stocks fell by a fifth or more on at least one day". Ummm...I am going to try and make some serious money from this.
Innovation: Musicline lets you search by humming. Go Hum an incredibly cheezy 2unlimited song and see if this thing actually works. (Via Linkfilter).
Grove warns US government that tech is becoming commoditized and thus, globally less competitive.
Time to rebuild a comparative advantage. Oh wait - we've already got one - it's in being the global source of discontinuous innovation. We've just got to exploit it better. How? Now that's the question. Things that would help:
1) Rebuilding social capital between technology and finance
2) Educating new engineers and risk capitalists
3) Fixing the broken HR systems that are basically irrational barriers to entry for well-qualified people
4) Shifting the Street's focus from the (pathological) short-term to at least the medium-term
5) Thinking about strategy and economics, not just profits and margins
6) Corporate governance focused on value creation, risk and reward, not protection, efficiency, value extraction and legislation
TechBlurbs reviews Skype. Interesting reading. Asks the monetization question. I am actually fairly confident about Sharman - they are shady bastards, but they seem to have been operating with a coherent strategy from the start. Their strategy is also consistent across products - pretty amazing for a tech startup.
Ventureblog reviews a speech by Reed Hundt, who says that the IRR of dot-com investments is 9%:
"What still made the boom a bust, however, is that the losses were widespread whereas the gains are concentrated in a handful of winners (Ebay, Yahoo!, USAI) and volatility adjusted, 9% is a lousy IRR for so much risk".
Fairly amazing. I don't know if I agree that 9% is low for the risk though - look at the returns of other, less risky asset classes during the same period.
Also talks about innovation. I think the real key is, like I've said before, the massive innovation infrastructure the US has that no other country in the world does:
"Reed correctly focused on entrepreneurism as the engine that really differentiates the U.S. economy from many others. What makes entrepreneurs more common in the U.S. than elsewhere? Culture.
I was mouthing the word "freedom" when Reed said "culture," but close enough, I suppose. If our culture advocates openness, competition and change, what happens if we lose it? This is the danger that Lessig is warning us about, and not enough people are paying attention to."
Food for thought for potential entrepreneurs. Market failures are always fertile ground for cool ventures.
Tim Oren has a great post on SV4.0:
"The Next Big Thing is a narrative we lay on top of the events after they happen, when we make our myths of the FairChildren, Steve and Steve, and kids from Cham-bana who changed the world...All a mirage, induced by survivorship bias...
...But just keep it in mind the next time the Valley Grail Quest gets trotted out by the punditocracy. There will eventually be a Valley 4.0, but the odds of any of the folks up on stage with their sunk investments - or you - calling it in advance aren't very wonderful. Most likely, it will hit rudely from behind, when least expected."
How true is this. Let's count all the failed Big Things of the last few years: push marketing, convergence (of about 27 different kinds), tablet computing (again), portals, etc. Now we've got little bubblets in social software, P2P networks, and WiFi. I think the real disruptions are going to come from left field - and these technologies are going to be interesting, but not what people will look back on as the Big Thing.
Detail about how Skype bypasses firewalls. Interesting.
writes about legislation as strategy. The point is that legislation is not a great strategy - what a surprise. This is something people outside the corporate superstructure have realized for quite a while now.
The premise is also wrong: that the music industry has a 'pricing problem'. It's not a pricing problem, it's a strategic problem - a problem created by the impacts of technology on the competitive dynamics of an oligopoly, and a problem fundamentally about an entire industry
not developing the right core competences necessary for future success.
To call it a pricing problem misses the entire point
of what's going on in the music industry today. I love it when b-schools try and co-opt what people actually in the market are saying, and then get it dead wrong.
Wow. The firm that invented the (idiotic) DRM system that got shift-hacked are gonna sue the kid that discovered the hack, under, what else, the DMCA.
From a strategic point of view, this is the STUPIDEST MOVE POSSIBLE.
Note to Sunncomm: don't legislate, innovate. You got hacked because your product sucked
. Is that true? No, actually, you got hacked because your strategy sucked
. You're playing the wrong game. If you wanna compete with Macrovision, you have to out-innovate them - there's no other way. The market won't think your tech is any better just because the kid that hacked it is bankrupt.
the inquirer is reporting that Sunncomm has backed down.
GoogleSpam. We will soon find out if the net is a self-organizing system of any meaningful complexity - or if it's just a simple switchboard.
Fascinating article about the blackout earlier this summer.
I love the Reg, but they get their strategy backwards. Here they talk about John Sculley not choosing Intel - and how this was a strategic mistake. I think it's fairly straightforward that Apple choosing Intel would have hurt Microsoft, helped Apple, and helped Intel, but the article's an interesting read anyways.
the death of e-books. Are e-books really
dead? I think they were kind of ahead of their time. They happened before
the big ciscontinuity in consumer needs, and then they didn't offer the same kind of interconnectivity that other books did.
But I think this market is going to be one to watch in the next three to five years. Despite Yahoo's best efforts.
I found this quote really funny:
"One problem is that e-books are up against a very established technology, namely books. And most people are very happy with that technology."
Thursday, October 09, 2003
If you're into neuroscience, there are some phenomenal posts by Tom Ray at Brainwaves. Killer stuff.
Matt Haughey writes a great piece about his experiences with micropayments and AdSense. He points out why AdSense works so well (because PageRank works), what can be done to improve it (more transparency and granularity), and why micropayment systems like BitPass won't work (too much hassle). Best link of the day so far (via Werblog).
Beyond BPO, Part 667:
Read this interview with Wipro's CEO. They're one of India's largest tech firms.
Sheds a lot of light on what the resources, capabilities and strategic intent of these kinds of players are. In a nutshell, they lack a critical resource that firms here possess in spades: the social capital necessary for radical innovation. Their organizational capabilities, in contrast, are centred around being efficient providers of commodity services.
Techdirt posted a great link to a new DRM system from Macrovision. It's based on remembering the scratches on a CD - no two sets of scratches are alike - and using those to discriminate between copies. Cool idea.
Of course, Macrovision doesn't want
the Replication Wars to end. The longer they go on, the more cool ideas like this they can sell for big money to content publishers. So they are better off if their products eventually get hacked. An unhackable DRM system from them would lead to a short-lived monopoly, and a quick end to growth.
Strategic moves in the online music space:
"As of November 8, 2003, EMusic will be discontinuing the unlimited service offering and replacing it with a new service offering that places a reasonable limit on the number of downloads available to each subscriber in a month".
The limit is either 40 for 10 bucks, or 65 for 15. Can I get a Hallelujah (says Magnatune)!!
Why are they doing this?
"The music industry continues to suffer under intense financial, legal and technological pressure. As a provider of music downloads, EMusic is subject to a complex system of intellectual property rights and technological challenges that impose high costs and often uncertain risks on the company".
What does that mean? Basically, they probably realized that they were giving away far too much given iTunes' pricing model. But of course, iTunes has higher quality stuff - and isn't trying to charge for bundles, like eMusic is. Maybe they were also getting license intimidation from some of their bigger labels.
This is not a source of advantage, part 676:
"Even planned modifications for financial systems are affected. Prior to Sarbanes-Oxley, one of Travatello's programmers could change a system with one approval. That programmer could make the change, test it and hand off to a second person to make it live. Blue Rhino now requires three approvals and a new worker to handle each step of the change.
In the past you were trusted to do your job," he says. "Now it's about multiple approval codes."
Ummm. Turning your firm into a machine bureaucracy is generally not a great thing to do - especially when the dominant forces in the economy require radical innovation to become a way of life.
If you work at a firm like this, leave. It's gonna get killed soon anyways - probably by folks from China and India, who can do machine bureaucracy much better for less money.
Intuit backs down from usability restrictions.
'"You told us that you want the flexibility to install and use TurboTax on multiple computers, and we heard you, loud and clear,'' Allanson said in his letter, which will be available on the Turbo Tax Web page and on select Internet message boards today.'
What a surprise. There really is
a discontinuity in consumer needs - and most managers don't get it. This discontinuity is driven by interconnection, reconfigurability, and velocity. But most managers are trapped in silos made of concrete - no wonder they don't get it. No wonder it takes the strategic equivalent of a crane-kick from Daniel-san to make them wake up.
Note to tech managers: try finding out what your consumers want - and then offering them something disruptively better. Not disruptively stupider.
The Replication Economy:
According to Bill Gurley, digitization=commoditization=hypercompetition.
It does - but only for the players that want to enter this Red Queen race. Firms have another alternative: build resources for the future protected by isolating mechanisms.
What does this mean? It's pretty simple: if Apex sells a China-manufactured DVD player at Wal-Mart for 43 bucks and change, it's tough to compete - especially when China's manipulating it's exchange rate. But no one doubts that in ten years, Sony is going to own part of the home's networked hub - and Apex isn't. Why is this? Because Sony's evaded the replication economy neatly by platform thinking
. Platform thinking protects resources and capabilities.
Sony also hasn't entered the massive BPO arms race either - so it's core competences aren't being rapidly eroded.
News.com.com talks about the war for clicks.
"Now, it's more about promoting clicks--or collecting fees each time Web surfers click on text ad links. ..The industry has become so lucrative that domain name companies and adware companies are preying on it".
The economics of this market are all wrong. Clicks are not what has value on the web
. Push marketing already failed - and 'click capture' is just another way to push market. In fact, for more people, all it does it create more
transaction costs and search costs than they faced before. Do I want my default search page changed to Yahoo (or, for that matter, XXX.ru)? Do I derive any value from this? No - and neither do most people.
What has value on the web is what lies beneath
the click. Google (kind of) gets this. I'm writing a longer piece on that for you to read soon.
Wednesday, October 08, 2003
Colonizers Vs Consolidators
Two of my profs argue that businesses can be revolutionary or scalable, but never both. I am going to email them now and tell them just how much I disagree with this. Basically, the argument is that late-movers have an advantage over pioneers, who pay significant pioneering costs - and who rarely create the dominant design a market chooses.
Great speech about the future of TV by the Beeb's Director of New Media.
Interesting Lawmeme thread on compulsory licensing.
Clearly, the end to the Replication Wars is going to be based on an economic solution, not a technological one. I've long thought that an ASCAP like model was the way forward.
Outsourcing: the orthodox view.
What can I say about this that I haven't already said today?!
This is not a tech strategy, part 234:
"Merging these institutions involved a massive effort to identify each heritage company's "centers of excellence," to reduce complexity and inefficiency and to reconcile different approaches to business".
This is just trying to achieve some poor associate's Excel value for synergies.
A real tech strategy is as much about enabling innovation as it is about efficiency. It's as much about supporting corporate strategy as it is about integration. It's fundamentally about building ways to protect valuable resources, and generate value for consumers.
So, on the one hand, these guys are beginning to eviscerate their own by offshoring critical functions - and beginning to destroy critical core competences. On the other hand, they are totally focused on efficiency in what's left of the core.
If these guys weren't granted the status of perpetual oligopolists by regulation, they would be very ripe targets for massive disruption. Maybe there's a strategy for a revolutionary somewhere in there.
The CIO of Sony Picturestalks about DRM (and not about the discontinuity in consumer needs. What a surprise!!). I guess Hollywood doesn't
Lessig talks about open source and innovation. Worth a read.
Read this. Details about Macrovision's new DRM platform. The new hook is utility pricing, where you get charged by 'how much' you use. You can also combine flat/variable usage models. Interesting.
Sony releases the PSX. Welcome to the disruption. Bye bye, incrementalists.
Apparently, everyone at Silicon Valley 4.0 is now into the survival of the fittest meme.
You know the sh*t has hit the fan when Guy Kawasaki says:
"Our emphasis wasnï¿½t about making money. It was about changing the world".
Note to Guy Kawasaki: The more you try and make money, the less you actually will
. This is a kind of Jedi mind trick of business strategy. You used to get this a few years back. Don't let the vultures infect you. Just look at the music industry.
Other than that, the article is pretty depressing. How can innovation happen when these guys - the innovation catalysts - don't believe in innovation any more? Maybe it's time for them
to be selected out. There's some Darwin for you!
The Replication Economy, part 999:
Student hacks CD DRM by pressing Shift.
"...Software included on the CD limited consumers to burning only three regular copies or to sending promotional copies that timed out after 10 days..."
"...Nathaniel Brown, a BMG spokesman, admitted the restrictions could be bypassed by a determined consumer. But he likened the software, made by SunnComm Technologies, to a ``speed bump'' that would deter ordinary consumers from casually making multiple illegal copies."
'Speed bump'?! People like this deserve to be put out of business.
"Vivendi Universal and General Electric Co. have reached an agreement to merge the French company's Hollywood studio, cable TV networks and theme parks with GE's NBC business, creating a media giant with about $13 billion in annual revenue..."
We know how those usually work, don't we?!
Quote from here.
Anti-spammers are apparently trying to now filter 'in' email rather than filter it out.
This approach is totally misguided.
Beyond BPO part 613:
Nice NYT article about Huawei, China's biggest communications hardware manufacturer.
Beyond BPO, Part 612:
MBAs everywhere start to cry cuz India moves up the skills chain.
"...Dushyant Shahrawat, a senior analyst at TowerGroup, a financial services consulting firm in Needham, Mass., said "a junior sell-side research analyst from an Ivy League school costs $150,000 a year to the company, while an Indian equivalent from a top business school would cost $35,000 a year."
"...India will see increased outsourcing of research in equities, economics, derivatives and debt research because of cheaper talent as well as language skills," said Andrew Holland, executive vice president for DSP Merrill Lynch in Bombay, a firm 40 percent owned by Merrill Lynch."
Monday, October 06, 2003
Tribe Vs Craigslist.
Are they even really comparable? More later - gotta catch a plane.
Hollywood gets it.
"...It's not too soon, however, to say that I've got a personal stake in this struggle. I want to keep watching big-budget Hollywood movies, and I'm worried they'll stop coming if enough people cheat the system"
1) Hollywood doesn't
2) I don't
want to watch Bad Boys 14 when I am 40.
What's gonna happen to the music industry, Part 347:
the utopian vision.
Economics 101: BPO begins to attract competition. Lucky for them (unlucky for crying MBAs everywhere), India has already moved up the 'skills chain'.
Recombinative innovation: Mitel plans VoIP Cell hybrid. Maybe not exactly the dominant design this industry has been waiting for, but another sure sign that it's coming. It will be fun to watch this discontinuity break down industry boundaries, and put some long-suffering incrementalists way out of business.
Barry Diller and Google in talks. Not to hark back to my punk days, but Barry Diller is like the Anti-Google. In fact, I would mark the settlement of any deal to give DillerCorp more exposure as the moment when Google finally
sold out. Unless you think they already
sold out when they started copying Overture.
Motorola spins off chip unit. Good move.
From Due Diligence:
"The dynamics of a new act are particularly important. Often, a great new act goes undiscovered for a long period of time, then starts to generate buzz in a few markets. Given how social a phenomena hits are, this buzz has to be nurtured and exploited by having enough product on the shelves. Only a big music distributor can guarantee that.
Wal-Mart is destroying that capability..."
These 'dynamics' I think are a business model that was slowly becoming less and less in tune with reality - market the hell out of an essentially inferior good, and keep information asymmetries as huge as possible. Wal-Mart naturally stepped into the breach - offering them volume in exchange for control. Now, the music industry has a golden opportunity to completely eviscerate Wal-Mart - they just won't take it, because they're even more afraid
of changing that business model than they are of Wal-Mart.
The central question is this: are 'hit-driven industries': made by
consumers, or for
These hit driven dynamics have been happening the video games space too. But the strategies of the video games publishers have been, interestingly, evolving just like those of the music industry did - marketing, marketing, and more marketing. Now, everyone is kind of screwed - except for the innovators.
I also take the point about the music industry needing to search for processes beyond selling recorded music to make money. I think this is because music as a medium is less and less important (by itself) to most people. Here's an example of how they are starting to do exactly that.
Google in a bit of controversy over AdSense.
The Reg talks about blogosphere demographics.
I'm going to be travelling for the next day or two, so updates will be light.
Digging through all the references for social capital and came across this piece on pseudo-network economics. Interesting if kind of dated.
Took some flak for calling b-school profs posers. So let me apologize to the gang at Terranova - who are doing some excellent analysis of virtual economies, which is not in the least poserish. Check it out - and remember: "I a/\/\ j00r fathah!!!!"
A VC linked to this NYT op-ed piece
"The absurd Robin Hood narrative that has sprung up around music sharing only obscures what is happening: that a large group of mainly middle-class individuals are not just breaking the law, but also attacking the legal concept that is essential to freedom and prosperity in the information age..."
What is a fair price anyways? Is it the one set by the market? Or does the fact that consumers know how hard the music industry has been screwing them and
the creative people that actually make the music have some bearing on the establishment of a fair price?
The Sensor Web. Thought provoking.
Intel's Craig Barrett talks about offshoring and competitive advantage. Basically, the jobs aren't coming back, and the US needs to build new resources with which to compete.
Apparently, some other folks think the same thing.