Strategies for a discontinuous future.

Saturday, August 21, 2004

How Not to Analyse Tech Strategy, pt 341

"..."Search is not a business," said Allen Weiner, a research director for Gartner Inc., a market research firm. "It's a gigantic horizontal technology which they will have to continue to throw hundreds of millions of dollars at to make it strong."

...Weiner said Google should think of itself as a media company, saying Yahoo began a significant turnaround when it hired Terry Semel, a former Hollywood executive."

Uhhh...do I really need to say anything? Search is not business, nor a technology - it is, most fundamentally, an economy. That's what business models are built on: economics. Telling Google to Yahoo is like icing on the cake - who's been calling the shots in this industry, and forcing rivals to scramble to respond?

"..."They'll say to their dying day they are a technology company," Elliott said. "But 98 percent of their revenue comes from advertising." "

This the coup de grace. Note that this is exactly what consultants and analysts spent the 90s telling the TV and radio industry ('you're really in the ad industry'). Look where it's left them - with vital points massively exposed, and in fatal strategy decay. Why? Because it ignored the fundamental reality of their businesses: not alienating viewers and listeners in the name of ads is exactly what drives ads.

-- umair // 11:40 PM //


Replication Wars

EFF wins Grokster case, Cory's got the details.

Look, I know this is somewhat heretical, and I think the EFF is incredibly cool, but the replication wars are over. We already won. The big question is: what will the next industry architecture look like?

Now, the media industry will use every bit of cash it has to litigate for a dead business model - until and unless someone proves there's a better way. Now, we all know there is - but no one's unlocked the new dominant design quite yet.

So what's happening here is curious: litigation makes potential investors wary of this space. So the rate of innovation slows down. At the same time, people spend less on movies and music. So the record industry is really creating a kind of prolonged agony for itself. Bizarre, to say the least.

The SuicideGirls ads are my main reason for visiting ole BoingBoing these days.

-- umair // 11:19 PM //


Strategy Decay - Case Study

From 'Is VoIP Chump Change?':

"..."It's not going to, like, change my life," Dorman said. "This is going to be a couple-of-billion-dollars-a-year product. But you have to put that into the context of a $25 billion-a-year company."

Clearly, the question is not the size of the VoIP market - that will by definition be much smaller, since it is essentially a hypercommoditizing innovation. The question is how much of the $25 biliion VoIP will vaporize, or, if you like, how much it will shrink the pie (at least for AT&T).

These days, A $25 billion/yr company can become a $25 million/yr company with increasing speed. That's what hypercommoditization means. But to recognize all of this means stepping outside the usual frames of hidebound industry dynamics, and figuring out what's really going on. That's what decay is really all about.

-- umair // 11:12 PM //


Textfiles is like an archive of the BBS scene. Very cool stuff here.

-- umair // 11:08 PM //


Replication Wars

The RIAA's still at it:

"...A woman in Milwaukee and her ex-boyfriend are under orders to pay thousands to the recording industry. A man in California refinanced his home to pay an $11,000 settlement. A year after it began, the industry's legal campaign against Internet music piracy is inching through the federal courts, producing some unexpected twists."

If you want to be heard about this, check out Shake and Break and add your data. The only voice the industry will understand is cold, hard numbers.

If you think our method's not accurate, test it before you knock it - it's not as simplistic as it looks.

-- umair // 10:43 PM //


Economic opportunity in environmental sustainability : Toronto Healthy House is self-sufficient in its water consumption (via Mefi). Wow! I am sure something like this in Vancouver or Seattle would be even more viable, given the higher average rainfall in the Pacific North-West. Note to Greens : the Market is your friend, not enemy. The only way such innovations are going to make it will be through the market mechanism for intermediating risks and rewards.

-- Mahashunyam // 9:28 PM //


Business 2.0 interviews Prof Jagdish Bhagwati (Sub). Higly recommended.

I wish more economists would reach out to the Left to explain the role of macroeconomic policy and trade liberalization in poverty alleviation. Lately, I find myself engaging in deep discussions with my leftist friends, and it is striking to see how common our concerns are. At the same time, I find that most people do not have sufficient training in economic analysis to form well-reasoned opinions.

This makes me think that the Stupidity Tax we keep paying through our noses is just a result of our societies not being literate in economics. I cannot imagine that anyone reasonably well-versed in economics would ever support monstrous idiocies in public policy such as the War on Drugs in America.

Hmmm...if I were the world's chosen dictator for a day, I'd make it compulsory for every kid in every school to learn economics and its application to public policy. Not exposing citizens to the ideas of Bastiat, Ricardo and Smith is just too expensive for any society. It disturbs me to see that an entire generation of otherwise enlightened, well-meaning young people, especially on the Left Coast here in BC, think that trade liberalization is a *cause* of poverty, rather than its *cure*. Look no further than the link to Adbusters' take on economics posted earlier this week.

Why aren't so many educated, rational people in the West analyzing the historical experiments in economic principles, conducted at horrible human cost, in North Korea/South Korea or East Germany/West Germany? Why aren't they asking themselves why identical societies separated at a point in time in history evolved so very differently over the course of the next couple of generations just by following different socio-political and economic systems? Aren't they going to understand the economic mechanics of the miraculous poverty reduction going on right now in India and China?

-- Mahashunyam // 7:03 PM //



Silly Dems, Malkin is nothing more than a decoy. Misdirection gets you guys every time.

-- umair // 12:21 PM //


The Economist reviews C K Prahalad's views on profits and poverty. Personally, I believe this to be the most significant idea of the post-tech bubble era. Did I mention that I think CKP is brilliant?

-- Mahashunyam // 5:23 AM //


An option trader's diary. Well, kind of - he's only trading 4x QQQ straddles!! If you don't know what that means...uhh.. it means he's not exactly betting the farm on something a really deviously cool trade.

Raises an interesting question - are the areas currently locked out of the blogosphere (ie anything non-geeky that makes serious $$$) going to join the fun? I doubt it, but this could be a leading indicator.

-- umair // 1:05 AM //


More Google

Slate has an article called 'Four Ways Google Failed' (referring to it's IPO). The four reasons are mostly specious (it didn't netscape a bubble, vaporize 'evil' ibankers, prove the EMH, reform corporate governance).

I hate to rant, but this article really got to me. It just sounds so...European. The reason the States innovates is because even failure earns a reward. And, more to the point, success has a very serious reward.

In Google's case, there are many things it failed at - including doing my laundry. What it did succeed at is building a billion dollar business out of a few very simple and elegant thoughts.

Not to mention that the article contains some seriously wrong analysis:

"...What's more, yesterday some 22 million shares�more shares than were actually issued in the IPO�traded hands at an average price of about $100. So even though there were enough buyers willing to take the whole offering at $100, Google wound up accepting $85, leaving close to $300 million on the table."

Finance 101: The day after the IPO is not the IPO. Risk preferences change the day after the IPO. You cannot make this comparison at all.

Read Jamie Surowiecki's FT piece instead:

"...Wall Street can spin this however it wants. But Google went public without underwriting from a major investment bank, without handing out favours to well-connected executives and without dictating a price in the manner of Soviet central planners. Because it did, it now has hundreds of millions of dollars that it would not otherwise have had. By any standard, this was one IPO that worked."

-- umair // 12:51 AM //



"...German men are being shamed into urinating while sitting down by a gadget which is saving millions of women from cleaning up in the bathroom after them.

The WC ghost, a �6 voice-alarm, reprimands men for standing at the lavatory pan. It is triggered when the seat is lifted. The battery-operated devices are attached to the seats and deliver stern warnings to those who attempt to stand and urinate (known as "Stehpinkeln").

"Hey, stand-peeing is not allowed here and will be punished with fines, so if you don't want any trouble, you'd best sit down," one of the devices orders in a voice impersonating the German leader, Chancellor Gerhard Schroder. Another has a voice similar to that of his predecessor, Helmut Kohl."


-- umair // 12:48 AM //


Art of the Day

Diamanda Galas is an old fave.

-- umair // 12:40 AM //


Interesting post by Gen suggests that Apple was more integrator than original innovator with the iPod. This is still a kind of innovation - architectural innovation. Problem is, it happens a lot less often than simpler kinds.

-- umair // 12:35 AM //


How Not to Understand Blogging, pt 366

"...Like a lot of journalists, ClickZ's editors have been pondering the role blogs are coming to play."

Here's the rest. Basically, Clickz violates the Golden Rule of the Blogosphere - cite when you link - and then attempts to justify it using the NYT as an example. What a big surprise coming from Clickz.

This article is a great example of why innovation happens from the outside, or in what Ron Burt calls 'structural holes': because incumbents get trapped by inertia, tradition, hidebound thinking, narrow frames - and strategy decay.

-- umair // 12:12 AM //

Friday, August 20, 2004

Does the growing unrest over Venezuela's elections serve as a prediction of what's to come in November in the States?

-- umair // 9:23 PM //


Will Farrell does Dubya. The video is funny. The political stuff underneath it looks like "soft money" advertising (or anti-advertising), but it's anti-republican...so that's ok with me.

-- dhd // 9:05 PM //


Wired magazine has an article on the seemingly forgotten IPO from Nanosys. I'm not so sure about nano's immediate promise of a world replete with "nanobots" and "replicators". If you're a little more pragmatic, you'll realize that nanotechnology companies might start making money around the time your children start investing (assuming you're in your twenties).

-- dhd // 8:34 PM //


You can read Robert Sawyer's vision of a what a day in 2014 will be like. I think it doesn't consider anything that's really happening in the world today (war, ideology, new kinds of economics, disintegration of cultures) - and so is just a simple extrapolation down the technology curve. Everything we know about the dynamics of innovation tells us this is not how technologies and cultures interact. YMMV. (Via /.)

-- umair // 8:27 PM //


You know we've officially become a Big Brother society when the ACLU publishes reports titled The Surveillance-Industrial Complex. Cooperation between the private sector and government, great.

-- Kashif Hasan // 7:37 PM //


Intellectual bankruptcy : America's War on Drugs turns to prosecution of physicians who prescribe painkillers. Everytime I think the Shrub and his chimps cannot possibly become any more stupid, they always manage to astound me some more. Our entertainer this evening is none other than the oh-so-lovable Mr Ashcroft.

Let's think about the consequences of such idiotic actions. Are they going to stop patients from seeking pain releivers? No, pain is a strong motivator and influencer of choice. Where is this going to lead the patients to? Grey market for prescription medicine or, in the worst case, drug trade on the Street. Who'll benefit, even if we assume that people will be too scared to run into the arms of their friendly neighbourhood crack dealer? Suppliers in the grey market, who don't ask too many questions. I'd bet on these to be mostly hard to regulate Internet pharmacies. Will the patients know exactly what drugs to order from them? Nope, that's why they go to their doctor, silly! Is that going to stop them from ordering whatever drugs they think might work on their pain? Of course, not. What incentives do their doctors have to monitor their patients' health? Let's see : lack of knowledge of what drugs their patients are on, increased malpractice insurance premiums, strong fear of prosecution by Ashcroft's goons and exposure to liability risk. Sounds like no incentives to me. My prediction? Patients will pay more for drugs and self-administer high-risk treatments to escape pain. Will they be better off? Doh!

-- Mahashunyam // 2:20 AM //

Thursday, August 19, 2004

If invested right, technology creates more social capital which creates more technology which creates .... you know how that goes. Here's a fascinating example of how such effects manifest themselves : a rural district in India is the first to become e-literate, thanks to a government initiative.

-- Mahashunyam // 10:43 PM //


I'll add an opinion on google. At $85 dollars a pop, google could be a risky investment. I'd still take the risk. Google has three main strengths as I see it.

The first is, of course, is technology and brand interaction. Their IP is well protected, their search engine is efficient and dominant. However, is it improving? Well, Google certainly spends a lot of cash on R&D. With new and innovative search companies trying to take a piece of the pie (such as vivisimo and blinkx) as well as competition from the old standards (MSFT, Yahoo, and Overture), google's search engine might no longer be the king of the hill. However, Google has been dominant for so long that their brand now has a life of its own ("to google"). This competitive advantage is important, and suggests that google will be a good investment for at least the next 3 or 4 years (or until we start saying "i'm going to microsoft this" or "yahoo it").

The second strength is their valuation, based on the stock price and number of shares offered. Google will have A LOT of cash. From a company that appears to spend their money wisely, this can only be a good thing. Unless of course they spend a couple billion developing the next big bust. The question also arises: is the valuation of google inflated, even hyper inflated? Based on its core strengths and market dominance, I don't think so. But, there's a reason this is the 'bubble' generation, and memories of tech companies, based on some graduates student's pipe dream, with zero income, ridiculous P/E ratios, and stock values in the hundreds of dollars is still a fresh reminder of the silliness that can occur.

Finally, Google seems to have developed (be developing) one of the biggest computer networks in the world. Their massive network of mostly middle of the road pentiums (with a good number of xeons thrown in to keep things running smooth) is a strong computing and storage resource.
In fact, if I were to make a wager, I'd bet (not a lot of money) that the first conscious machine will rise from this tangled network of processors, hard drives, and cables. One day google might just ask you how you're feeling today. I don't really believe that, but I do believe that google has some serious real estate in the digital landscape, which allows for the flexibility and clout to adapt to and address market demands...gmail being one good example of leveraging this computing muscle.

-- dhd // 3:45 PM //


I will have more comments on the Google IPO, but suffice it to say for now that I predict a big first-day pop. This will mystify the academics and shut the Street up. Yes, I know, you probably predicted this too!!

-- umair // 10:26 AM //


Nanostring aims to disrupt genechips by digitizing the process of gene identification. The results will be order of magnitude efficiences and a massive cost advantage - essentially, an entirely new platform for genome research.

This fits nicely with the evolution of nanobiotech - which essentially promises to extend genetic engineering beyond the current crude manipulations we're capable of.

-- umair // 2:16 AM //



Hi folks,

Me and a couple of partners-in-crime decided to turn my sponsored discussions as blog ads 2.0 idea into a bigger thing. You can check out the preliminary version at Blogversations.

Panic, which is our prediction market (with simplified rules to make trading easier and more fun) is also open. If you tried registering before and couldn't, it's because we had a last minute bug with one of our market structures. All is well now, so trade away! I will post more about it tomorrow.

-- umair // 2:04 AM //


Marketing 2.0 = Marketing 1.0 (But Stupider)

bugmenot gone? Looks that way. A very nice example of your friendly local marketing droids shooting themselves in the foot with the gold PP7. Why? Because I bet that killing one bugmenot will spawn about 3 (hardier) imitators.

Trying to kill something unkillable, as dhd points out nicely, has serious unintended consequences. (Via Mefi).

-- umair // 1:50 AM //


Genome Economy (Geek of the Day Edition)

I understand neutral networks are a hot topic these days - here's a piece about a new technique breaking some ground. But mostly I linked because it's name is a geek factor home run.

"...To begin to understand the patterns of DNA changes that result from neutral mutation, Hwang and Green developed a new version of a powerful statistical technique that they call "Bayesian Markov Chain Monte Carlo sequence analysis." Basically, the technique enables them to feed in sequence information from genomes of different organisms and discern patterns that can distinguish models of mutational mechanisms.

-- umair // 1:47 AM //


Genome Economy

The Adonis Effect:

"...Mayo Clinic researchers have discovered a genetic basis for this physical decline -- and have suggested that �silencing,� or turning off a specific gene complex, may halt weight gain and control bone loss. The team found laboratory mice without this gene function have 70 percent less body fat and exhibit the dense bones and lean bodies of young mice."

-- umair // 1:42 AM //


Social Innovation

Bookmobiles in India:

"...The Million Book Project, a joint venture between India, China, the Carnegie Mellon University and Kahle's Internet Archive is an offshoot of this new technology. The project is further linked to Kahle's e-books -- 17 million of them. The christening of the project took its cue from Kahle's unassuming legend painted on his vans, "1,000,000 Books Inside (soon)". The project is set to digitise one million public domain books and make them available in scanned format for anybody for free by next year."

How cool is this? Incredibly cool. Social innovation is going to be an incredibly potent force. We can think of this as recapitalizing a stock of social capital.

The only problem is in countries with little social capital - ie Saudi etc. They can't achieve this kind of social innovation - because there is no capital stock to draw down. This highlights one of the coming problems with social innovation: increasing returns.

The trick, I think, is to seed social capital in the first place. But doing that is a very, very, very tough job - measure it by roughly counting how many states have failed in the last 50 years versus how many have succeeded. The rough ratio is about 10:1.

-- umair // 1:33 AM //


Price competition and increasing entry in Pakistan's mobile industry.

-- umair // 1:27 AM //


Ask and Ye Shall Receive

Remember a couple of days ago when I asked 'where are the punks' who usually sort out the geeks and the jocks? Weeell, turns out they're just about to arrive.

-- umair // 1:24 AM //


Macfanatics take Real's thinly disguised propaganda campaign to school. Look, Real has always been less than great at marketing. But that's unimportant. There is a very important psychological (rather than economic) lesson about strategy in this episode.

It's this: there are different motivations for conflict. Some are harder to break than others; that is, we can say that different motivations have different risk profiles. The simplest (and often easiest) motivation to compete against is gain (ie, simple economic gain). The second simplest is culture. But by far the most complex (and difficult) motivation to compete against is ideology.

The masters of strategy, from Musashi onwards, have emphasized this point repeatedly. We've lost it recently in our quantitative view of strategy, in which motivation is difficult (but not impossible) to represent.

The point is that Jobs is shifting Real from an economic competitor to an ideological competitor. He's changing their risk profile; they are getting hungrier and hungrier to accept deeper losses just to inflict relative damage on Apple (and so realize a relative gain). This is not smart, because it doesn't just raise the stakes for Apple - it raises the stakes even more for Real.

-- umair // 1:10 AM //


For all my fellow Philip K Dick fans. Especially in light of what's happening in the world these days. Enjoy!

-- umair // 12:55 AM //

Wednesday, August 18, 2004

Adbusters' latest project is kind of a bizarre and misguided take on economics. They try and link neoclassical econ's overemphasis on quantification and model (which has been rightly criticized by many eminent economists) with...everything they hate in the world.

Sorry, but the two just don't link up. 'True-cost' pricing is the very essence of economics. Markets do work in the real world; that's why we use them.

I understand and sympathize with Adbusters' frustration with the corporates - but attacking econ is stupid. Econ is not responsible for killing species and deforestation. In fact, econ gives us the only tools we can really use to build systems to stop such lunacy.

I hate to rant, but I think this is a case of Adbusters being too naively first world for their own good. They should spend some time in the third world - where markets aren't - to experience the counterfactual: life without economics. Clearly, life with econ is a hell of a lot better.

-- umair // 11:15 PM //


Rorschach Blog

The future of blogs - if you ask these guys, it's PR and marketing. Maybe that's because they're in PR and marketing.

-- umair // 11:07 PM //


The death of spectrum licensing (pdf). Ever wonder why cell phone use costs so much? Why you have to pay out your nose to use what is essentially a free resource. Is it R&D costs, so that wireless companies can bring you the nth generation of services allowing you to check your email, browse the web, pay your bills, talk to your mom, and drive your car all at the same time? Maybe a little bit. It also has a little to do with paying back the cost of all the wireless equipment required to give you ubiqutous coverage. But a portion of it comes from these companies having to cover the costs they incurred when they purchased licenses for a portion of the artificially subdivided EM spectrum. I see this article as one classic example of the death of a licensing model in response to the pressures of the modern digital economy. With devices that can share the spectrum autonomously, the need for an archaic licensing system is long gone.

-- dhd // 8:21 PM //


Raining havoc from above. This strange incident illustrates that even apocalyptic events such as the demise of human civilization due to a giant meteor impact can be subtly hinted at through a microevent. Chances are the supposed meteorite fragment is a common stone, and the supposed gash on her was caused by a terrestrial object. Nonetheless, I'd go play the local lottery if I was this woman.

-- dhd // 7:04 PM //


Antibiotic resistance is quietly lurking as a potential disaster of black death proportions. High rates of bacterial mutation, general disinterest and improper drug use by the public, in combination with prohibitively high development and testing costs for pharma companies is leading us down a dangerous path.

So what's this mean? Well aside from a complete overhaul of the FDA (or relevant regulatory agency) drug approval policy for antibiotics or a concerted international effort to provide incentive for novel antibiotic or alternative drug therapy development (both of which seem unlikely any time in the near future), we're all screwed.

Seriously though, this type of trend will likely lead to some developing markets for products such as this. Crazy yes, but likely an indication of things to come. More promising developments (involving legitimate science) are mentioned here. My bet is on the bacteriaphages (good time to read up on some old Russian science).

-- dhd // 5:17 PM //


A nice article on possible developments and future directions for wireless internet access.

With all this talk about wireless access for the masses, the ever increasing scarcity of electromagentic spectrum is becoming a real issue. Hence the FCC's Notice of Proposed Rule Making and Order (pdf) in regards to dynamic spectrum management and the implementation of cognitive radio (in my opinion, and those of many others, the next 'next big thing' in communications.) I will comment extensively on cognitive radio technologies and their potential market in upcoming posts.

-- dhd // 5:00 PM //


Hi everyone, I will be posting on bubblegeneration from time to time. Just as an introduction, I work in the intellectual property field with an interest in a broad range of technologies (from communications to biotech), their implementation, potential for disruption, and market dynamics.

-- dhd // 4:56 PM //


Global warming opens up opportunities for innovation in energy consumption : Air cooled by the frigid waters deep in Lake Ontario started bringing relief to buildings in downtown Toronto. (via slashdot). Pretty cool.

-- Mahashunyam // 4:48 PM //


Distributed Economies of Scale

Lulu massively distributes book publishing - letting you publish, sell, and bill online (with on-demand printing for real-world delivery). Yeah, I know it has competitors - but trust me, Lulu's model is the right one: no up-front fees, which takes authors' risk out of the game, massively expanding the market.

What an absolutely wonderful idea. It makes me happy to see dotcom 2.0 in full effect - in fact, better effect. I nice acq target for our other favorite online bookseller? Maybe.

-- umair // 2:28 AM //


Gray Markets Defeat Property Rights - Endgame

Illinois State Gov sets up a website to import cheaper drugs from Canada. This is one of the first hints of how the dynamics of property rights in Net-mediated markets inevitable play out - the gray markets get legitimized into the larger market, consolidating parallel markets into one big one with different qualities of substitutes at different prices.

This is why property rights are a strategic error. The writing's on the wall; smart firms will think backward, not forward - and realize that large-scale legitimization of grey markets doesn't just disrupt business models; it kills them dead.

-- umair // 1:13 AM //


BSkyB sues EDS over CRM problems. The first of many to come?

-- umair // 1:03 AM //


BSkyB sues EDS over CRM problems. The first of many to come?

-- umair // 1:03 AM //


Hypergrowth causes infrastructure problems and inequities which lead to political pressure in Bangalore.

-- umair // 12:56 AM //


Surveillance Marketing

Realizing the exponentially increasing gains to coordination, especially in the face of convergence across media, ad-supported industries develop a new standard to assign unique identifiers to ads and other 'marketing assets'. It's called Ad-ID.

"...The top four U.S. broadcast networks -- CBS, ABC, NBC and Fox -- have signed on to comply with a new 12-character code for tracking all advertising, a system heralded as a new standard for monitoring the $263 billion U.S. ad industry, the two advertising trade groups behind the system said.

Called Ad-ID, the technical switch is being compared to the introduction of the universal product code, or UPC -- the tiny bar codes that 30 years ago changed the way supermarket chains tracked and delivered inventory across the country.

...In about five years, Ad-ID and RFID could be used together, he said.

"Then we could measure whether we delivered the commercial to you, and, as I am monitoring your pantry, whether you bought the product, too," he said."

Very, very interesting. This is sure to detonate an arms race in privacy; it's also sure to spark a huge industry in complements (ie those who make sure RFID works with it, etc).

-- umair // 12:35 AM //



Real slashes prices to break Apple's coming monopsony. You can hardly blame them; Apple's refusal to open it's platform has left them with no other short-term strategic option than price competition. This is how markets evolve - it's smarter to co-opt your competitors before they become rivals.

-- umair // 12:31 AM //


Ed Sim says: Commoditization is not killing innovation. Of course it's not - commoditization is innovation pressure. A very nice point.

-- umair // 12:23 AM //


UCL researchers develop glass that blocks heat (ie infrared) above 29 degrees but not visible light. Nice one.

-- umair // 12:15 AM //


Outsourcing update from the NYT. You probably know most of this stuff already.

-- umair // 12:12 AM //

Tuesday, August 17, 2004

No, no, no...'The Six Types of Business Blogs'. A surefire way to suck the creativity and essence out of blogging - thus ensuring that it pays no dividends for corporates as idea-generator and innovation multiplier.

-- umair // 11:59 PM //


Plazes - a location coordination machine. The rise of this class of machines hints at my second big thing for the Net this year: machines that extend the Net's reach in space and time from smart objects (those with chips) to dumb objects (sidewalks, barstools, busstops).

These are symbologies like Spotcode, Semacode, and their assorted readers. The real tectonic shift will begin to rumble when location coordination machines link up with Net extenders - thus massively slashing the transaction costs of accessing a web of 'dumb' objects whose intelligence has been unlocked. Think about the value prop for a second - I think it will be a biggie.

-- umair // 11:48 PM //


Intelsat shifts hands to private equity. Why is this a good deal? Oh come on. Any privatizing industry is usually a good deal. Not to mention the fact that Intelsat's mandated per it's terms of privatization to issue a public offering before next summer if I recall correctly.

It's very interesting - I was just researching this about a month ago - the entire satellite industry is essentially being massively rationalized and restructured.

-- umair // 11:44 PM //


Replication Economy

Crackdown in Brazil begins:

"...Mr. Law, the owner of three shopping centers in downtown S�o Paulo where consumers can buy counterfeit or smuggled goods as diverse as CD's and DVD's, Rolex watches and brand-name clothing, had become one of the most notorious symbols of Brazil's thriving black market in pirated goods"

-- umair // 11:42 PM //


We can add strengthenthegood to the exploding list of political coordination machines.

-- umair // 11:40 PM //


Open-sourcing traditional geisha hairstyles.

-- umair // 11:36 PM //


Plea from a developer : Apple, Please Open up the iPod API!

Scroll down to the comments area and see the discussion under "What would you like to see on your iPod?". It's a glimpse into the fascinating collection of ideas and possibilities for unleashing the creative potential of thousands of developers. Any other tech company would give its arm, leg and the CEO's stock options for even a tenth of such tremendous potential for entrenching their platform. Investing in complementors to create positive network externalities does not get any better, cheaper and easier than this.

Steve, don't blow it, PLEASE. Listen to the market for once, willya? We want you to win. Don't snatch defeat from the jaws of victory this time around, for cryin' out loud!

-- Mahashunyam // 11:18 PM //


Strategy decay : Starter XP is so crippled, I think we can safely declare it dead on arrival. Constrained to run only three applications at a time? Wow!! We have seen a new level of strategic idiocy with this one.

Here's my take on how this "strategy", if I can call it that, might've been formulated : go through a list of checkboxes to de-feature standard XP to create "differentiated value" and position it in the "lower quadrangle of price-value map". Launch Starter XP at the low end of the product choice spectrum, and target it at the entry level value-seeker. This is classic marketing thinking, kinda like pitting the Saturn against the Civic. Since Microsoft is a monopoly, this is more like creating competition against Chevrolet by launching the Saturn.

However, from an economics perspective, there would be two more competitors in that spectrum : pirated copy of Standard XP and Linux. In economics parlance, these are substitute goods. Economics is the science of making choices and their causal relationships with incentives. What incentive does a value seeker have for choosing Starter XP? By definition, the value-seeker's prime motive is to get the highest value for lowest money. Where does he get the most bang for his buck? Considering that Linux has associated switching costs due to the value-seekers' unfamiliarity with the platform, the first choice is likely to be pirated XP. Is there any incentive for him to switch over to Starter XP? Nope. Why would he trade higher value/dollar derived from pirated XP for the lower value/dollar of Starter XP? The only additional benefit is the value of owning a "legal" copy. How much is that benefit worth? The expected value of this benefit is equivalent to the potential cost of prosecution and fine, which is the probability (risk) of prosecution multiplied by the legal fine. Since the rate or prosecution and conviction in cases of piracy is extremely low in the target markets, the expected value of the benefit ("marginal benefit" in economics parlance) is correspondingly low. Is it worth the additional cost of imposed de-featurization as well as the mark-up over the price of a pirated XP? Doh!

-- Mahashunyam // 6:39 PM //


RCMP launches probe into Nortel. Saga of broadbandits continues...

-- Mahashunyam // 5:20 PM //


Sterling's SIGGRAPH speech on Spimes. Aaargh. Look, Spimes are just a subset of something innovators have been discussing for ages - smart objects. Spimes are transparent smart objects.

I don't think Sterling's vision of Spimes will come to pass. Here's why: the history of innovation tells us that dominant designs are circumscribed by economics. Now, the economics of Spimes are fairly straightforward: since they're hypernetworked, the market will be a massively winner-take-all market. Imagine MS to the 999th power - with access to the entire universe of data collected, tracked, and predicted by every single object you interact with.

It's not that the possibilities for evil outweigh the possibilities for good - thought clearly they do - it's that the firm's incentive to do evil outweights it's incentive to do good. The gains firms realize by abusing Spimes are far greater than the gains they realize by using Spimes to, I don't know, create nicer better technologies. Why would a hypermonopolist create a better technology when he controls all the Spimes?

So we have a paradox: control of the Spime market would be fought against viciously by citizens and antitrust authorities. But this kills the gains to Spiming by firms. So firms are better off keeping their objects closed.

The only way a viable Spimes market forms is if somebody without the incentive to abuse it controls it. Who's that? no one - the control of the market must be massively distributed. How will that work? Well, to begin with, it requires a fundamental shift in our notion of capital, labour, investment, and return - which hasn't even begun to materialize yet.

Sorry if this was long, boring, and painful. Sterling made me do it.

-- umair // 2:20 PM //


Link of the Day

Wow. The Smith School of Business and GMU's ECHO have set up two awesome sites: dotcomarchive and businessplanarchive. Highly recommended for would-be dotcom 2.0 players and students of next-gen business in general. I cannot emphasize enough how incredibly cool this is.

-- umair // 2:13 PM //


In case you didn't notice, I decided to try out Chatango - a flash-based messaging system - chat away. (via Joi).

-- umair // 1:36 PM //


Comments roundup

Hi folks, I know we've missed answering at least 2 or 3 comments in the last week or so. I'll open this thread up for those with questions. Sorry about this - Blogger makes it incredibly difficult to find unread/unanswered comments...

-- umair // 11:26 AM //


The View From Out There : How Textbooks from around the world portray US history. Pretty cool.

-- Mahashunyam // 7:57 AM //


An interesting list of "Urban Games" - location-based games for the GPS freak in you. Interesting way to get both exercise and quench the gaming thirst, just like Dance, Dance Revolution :)

-- matt // 4:10 AM //


Jeff has a great post about why Tivo + Netflix should merge. I've been thinking about it lately - they're very nice hedges for each other from a risk pov.

-- umair // 1:50 AM //


Ian Welsh has a very nice post that will introduce to you to some of Jane Jacobs' ideas. I highly recommend it - and I think her books are essential reading.

-- umair // 1:35 AM //


Jobs Vs Jobs

Daring Fireball has another post up in favour of Apple's music strategy. It's a nice example of why thinking strategically requires careful definition of firms, industries, dynamics, and markets.

"...So the gist of the current punditry�s iPod-as-Mac analogy boils down to this: Apple makes something cool, but then they keep it to themselves, and then they lose the market to a knock-off from Microsoft that gets licensed to other manufacturers.

...The iPod, iTunes, and iTMS work with any modern personal computer, Windows or Mac. Yes, the original iPod debuted as a Mac-only peripheral, and iTunes for Windows appeared even later � but Apple offered complete support for Windows relatively quickly.

...Establishing a de facto standard format for DRM audio, on the other hand, is the type of success that keeps on succeeding. Ten cents a song on 100 million songs is nice; sell a couple of billion songs, and you�re talking about a serious cash cow. Not to mention the potential to parlay success with DRM audio into success with DRM video."

The piece is a lil too confused for me to cover entirely, but if you are trying to analyse this topic, here's some fat to chew on. First, the notion of compatibility in the post is confused - let's be more precise and just call it complementarity.

Now, it's not complementarity between PC and media that's of any importance in this discussion; we take for given that for any player to have a shot at standard-setting, the nascent standard must be complementary with the core platform.

So it's complementarity between media and media player that counts here. This is why the Mac/PC parallel is deadly accurate - just like before, it's complementarity between hardware and software that's important.

That's because the gains derived from complementarity are the incentives for consumers to buy into the platform. In 1984, more software got more PC buyers; in 2004, more media players and iTunes clones would get more iPod/iTunes (platform) buyers. This is how markets grow - different quality substitutes at different prices emerge, attracted by firms seeking profits.

So Apple has a kind of meta-resource almost no other firm ever captures - a chance to control market growth. But it's opting out of doing so.

Second, the role of industry dynamics is pretty much ignored. Sure, Apple competes against Real, MS, etc - but the real game, as I've argued before, is monopsony power over suppliers (record labels). It's not between Apple and Real, or Apple and MS at all.

So yes, establishing a de facto standard for digital audio will be valuable. But that's to restate the obvious. The real questions are twofold: how do you do it fastest, and for the largest possible market? And how do you do it without fragmenting your own buyer power over record labels?

If the questions are rephrased this way, the answer pretty intuitively becomes: create a platform, charge for access to it, co-opt your competitors' market power, and subsidize your own technological advantage to exert innovation pressure. Apple's lucky Real begged them to do this; most firms have to fight for it.

If you really, really, want, you can read my long, mind-numbing Apple vs Real pieces from a couple of weeks ago. But I really think you should do something fun instead.

-- umair // 12:27 AM //


Om has a killer post about blogging and incumbent inertia from traditional media. Highly recommended.

-- umair // 12:26 AM //


Free Can Mean Big Money: The Open Source Economy. A well meaning article, but honestly not the best way to think about this economically - maybe a nice way to think about in terms of accounting, though.

-- umair // 12:12 AM //

Monday, August 16, 2004

The First World is the New Third World

1) "...Republican Rep. Katherine Harris said Wednesday she regrets making the claim that a plot existed to blow up the power grid in Carmel, Ind., a notion city officials disputed."

2) The FBI's 'questioning' and subpoenaing RNC protestors before they protest.

3) "...State police officers have gone into the homes of elderly black voters in Orlando and interrogated them as part of an odd "investigation" that has frightened many voters, intimidated elderly volunteers and thrown a chill over efforts to get out the black vote in November."

Orwell said freedom is slavery. Fundamentalist Islamic clerics actually say the same thing - in a surreally flagrant display of intellectual bankruptcy. Is freedom slavery? It's funny: in the States, just discussing this idea evokes derision and, often, anger. Why?

I think it's because liberty was hard-fought and hard-won in the States - but has, crucially, never been lost. So it's difficult for people to understand what it means for freedom to become slavery. How does it happen? Where does it come from? Isn't the whole notion absurd? This is how freedom decays into, at the end of an exponentially faster curve, slavery.

-- umair // 11:56 PM //


Dolphin communities dependent on superconnectors for cohesion.

-- umair // 11:37 PM //


The Walkman killed music:

"...The social pleasure of sharing music was terminated when people clamped plugs in their ears and tuned into a selfish sound. Music in the Walkman era ceased to connect us one to another. It promoted autism and isolation, with consequences yet untold."

Actually, I think this article makes some very good points - and tells us why file-sharing is giving new life to the music industry (despite their best efforts.

-- umair // 11:36 PM //


Laws of the Machine

Two nice illustrations of my 3 laws of machines today:

#2 - Machines exert their own sociality. The explosive growth in online dating services creates demand for personal ad writers. But economics is only a description. It misses the effects of greater efficiency in the dating market - radically altered social structures and norms.

"...In his rewrite, he nixed space-wasters. "When they ask for five things [one has] in the bedroom" -- a standard personals question -- "don't include bed," he said. He tried to flesh out what he saw as Ms. Quattlebaum's naughty-schoolgirl side. Her original ad said her favorite on-screen sex scene was "Charlotte Gray ... passionate kissing and Secretary ... big sigh."...

...In Mr. Tesauro's hands, that answer became: "A little roughhousing in Secretary made me want to take dictation, though Cate Blanchett's Charlotte Gray reminds me that passionate kissing is enough to make a girl tingle."

#3 - Machines exert their own morality: In the UK, plans are underfoot to track the children of criminals:

"...In an interview with The Independent, Hazel Blears, the Policing minister, says she is optimistic that "tracking" and "targeting" can help prevent children becoming criminals like their parents".

-- umair // 11:33 PM //


Politics of the Day

Fred Kaplan suggests there's no way 'out' of Iraq (I guess he means for us, and not the Iraqis). History suggests something none of the talking heads have really considered and that most of us would consider absurd - that Iraq should become (officially) part of the US. Sound stupid? Yeah. But think about every single empire that humans have created - the dynamic is nearly universal. Will we see it happen? I don't know (!)

-- umair // 9:08 PM //


I like ChangeThis a lot. It's a nice example of something I predict a lot more of: political coordination machines - machines which slash the coordination costs of organization. As discussed in previous Next Big Things posts.

-- umair // 5:25 PM //


Do you think it's a coincidence that the financial industry - one of the few industries which hasn't had barriers to entry eroded by the Net - is also one of the few industries making $$$?

-- umair // 4:24 PM //


A hilarious story of now Warner blows it's chances with MP3 bloggers. Dear record labels, all is not lost. Talk to me and I will tell you how to engage these guys without coming off like ultrabeancounters.

-- umair // 2:49 PM //



Roach has a fairly disturbing take on the macro picture:

"...By way of comparison, the last time the US had a �foreign trade problem� was in the latter half of the 1980s; back then, the trade deficit (as measured on a national income accounts basis) peaked out at 3.2% of GDP in the second quarter of 1987.

Needless to say, that was not the most tranquil of times in financial markets. As America�s external imbalance widened in mid-1987, the dollar came under sharp downward pressure and US interest rates were pushed higher. Those were the classic manifestations of a current account adjustment that many (myself included) believe were at the heart of the stock market crash of October 1987. "

I've been discussing this with some macro buddies, and they've pushed this line on me recently. It's not good to hear this echoed at the top of their community. I think the macro picture is pretty bad - but not this bad - because credit is better and fundamentals (ie earnings, cashflow, etc) are strong - but I'm not old enough to remember what really happened in 87. Time for a bit of quick research...

Am I the only one that appreciates the dark irony in the fact that Google's IPO -everyone's great white hope - is timed at the worst possible moment of the last 2 years? Ha ha.

-- umair // 1:43 PM //


Reading somewhere recently about Sci-Fi writers having a tough time predicting futures as we get closer and closer to the Singularity.

I think that's fundamentally inaccurate. I think sci-fs has become largely intellectually bankrupt because of the new generation of writers refuse to include social science - and when they do, it's always less than breathtaking. My favorite example is Foundation. Foundation was a novel based fundamentally on economics - because Asimov understood econ, he could create a world that seemed realistic, not contrived and arbitrary.

Other great examples Arthur C Clarke's Rama and his Fountains of Paradise (Hi Sir Arthur, I hope you are reading this!). In Rama, economics dictates the dynamics of the biots. Fountains of Paradise - now prophetic - understands that economics circumscribes exploration.

I read more sci-fi than I probably should. There are, to me, only two sci-fi writers currently writing who understand social science. The first is Bruce Sterling. He leaves me cold, because anyone with an understanding of the macro picture is not surprised or left with a sense of wonder by his predictions.

The other, otoh, is Stephen Baxter. I think his Evolution - written with a deep understanding of how energy economics shape advantage, selection, pressure, sociality, and structure - is one of the most momentous books I have read in a very, very long time. If you want to be provoked, I strongly recommend reading it.

-- umair // 1:10 PM //


An Intergalactic Investment Scam (via terranova). Wow!!! Most fascinating. These guys should have worked for Enron.

-- Mahashunyam // 8:49 AM //


Trying to Take Technology to the Masses. The bridge to cross the digital divide will be financed by the market and rewarded by profits. Brilliant. CK Prahalad is really on to something.

-- Mahashunyam // 6:39 AM //


California buys into open-source. (via slashdot). Given that most governments are struggling with expenses and deficits, it's understandable that they'd be very attracted to an order-of-magnitude economic advantage offered by Open Source.

-- Mahashunyam // 5:28 AM //


More fortune at the bottom of the pyramid : Indian auto and electronics industries lead the way in creating mass markets to chase profits from the lowest income strata.

-- Mahashunyam // 2:27 AM //


Great Unravelling

Christian Exodus - a movement with a plan for targeted migration of population to achieve a fundamentalist utopia based on theocracy (aka law based on the 10 Commandments) in South Carolina. Highly recommended.

-- Mahashunyam // 2:18 AM //

Sunday, August 15, 2004

Macroeconomy and innovations : Canadians are beginning to ask themselves why Canada is not able to translate its high potential for innovations into home-grown technology winners. Right question, wrong answers.

What is it about a society that makes it more suitable for innovation? Are there any macroeconomic policy options for the government to stimulate innovation and monetize it for its citizens? Let's make a very simple model of wealth creation in which R&D supply is "purchased" for a society by its government, productization is done by entrepreneurs and financial markets serve as intermedieries. Government funding or R&D in labs and universities as well the development of well-regulated finanical markets can be effected by sound policy-making. However, the key differentiator is entrepreneurship, which is as much a manifestation of culture and societal values as it is a product of personal attitudes and public policy. If policy-making addressed this part of the equation, then that would lead to improvement in macroeconomic wealth-creation.

Think about why the US has been the innovation engine of the West, even though most western economies spend similar amounts on government R&D and have access to well-developed financial markets. It is openness, meritocracy, forgiveness of failure, willingness to take risks, availability of risk capital looking for high returns, cultural diversity and a belief in free enterprise. Compare these to Europe and Canada to see the contrast. Avoidance of risk, lack of diversity and an ambivalent attitude towards wealth creation through entrepreneurship are some of the key reasons why Canadians and Europeans have been losing the innovation race to the US. While a lot of these factors are a product of history, many of them also have real implications on policy-making. For example, compare the US bankruptcy laws with France. Or look at capital gains tax difference between US and Northern Europe. Or see the laws on stock options and their taxation/accounting. Look at the acceptance and assimilation of non-natives in the job market, as well as in corporate hierarchies.

Sound policy-making can indeed overcome many hindrances to entrepreneurship by addressing these factors. Specifically in the US-Canadian context, the major differences are in attitude towards risk-taking and the assimilation of non-natives in the labour market. What policies are in place in Canada to encourage risk-taking and absorption of imported skills in the economy? Why is it that a much smaller percentage of Canadian entrepreneurs are foreign-born compared to the US, inspite of Canada having a higher foreign-born population?

In my opinion, one big breakdown is in Canadian labour market. Canadian policy makers should be asking themselves some very hard questions about why some of their most qualified immigrants face extremely high barriers to entering the work force, because that has a disroportionately large adversarial impact on entrepreneurship and wealth creation. Comparison to the US on that parameter of policy-making is startling. For more research, look at these:

1.Immigrant Skill Utilization in the Canadian Labour Market:
Implications of Human Capital Research (University of Toronto)

2.The Hidden Job Screen (Trinity Western University)

Compare this with the US:

1.Silicon Valley's New Immigrant Entrepreneurs (Public Policy Institute of California)

2.Local and Global Networks of Immigrant Professionals in Silicon Valley (Public Policy Institute of California)

Note to Canadian policy-makers : next time you hail a cab, take a good look at the driver to see the failure of Canadian labour market policy staring at you in your face. Fixing it would go a long way in helping Canadian entrepreneurship.

-- Mahashunyam // 6:30 PM //


Markets in everything, everywhere: this is a fascinating area with many opportunities for fresh ideas and wealth creation. Over at Marginal Revolution, they have been following this for a while. See this for a number of examples (scroll down the page or search for "Markets in everything").

-- Mahashunyam // 6:09 PM //


Global Warming vs Rhetoric as Corporate Strategy

"...Part of what makes this book important is its indictment of the American news media's coverage of global warming for the past two decades. Indeed, when the author investigates why the United States is virtually the only advanced nation in the world that fails to recognize the severity of this growing crisis, he concludes that the news coverage is ''a large reason for that failure.''...

At a time when prominent journalists are writing mea culpas for allowing themselves to be too easily misled in their coverage of the case for war in Iraq, Gelbspan presents a devastating analysis of how the media have been duped and intimidated by an aggressive and persistent campaign organized and financed by coal and oil companies. He recounts, for example, a conversation with a top television network editor who was reluctant to run stories about global warming because a previous story had ''triggered a barrage of complaints from the Global Climate Coalition'' -- a fossil fuel industry lobbying group -- ''to our top executives at the network.''

...When he got letters disputing the facts in his very first article, he was at first chastened -- until he realized the letters were merely citing the industry-funded scientists. He accuses this group of ''stealing our reality.''"

Link. I don't post these Philip K Dickian links to be alarmist. In fact, my point is that this is an incubator for whole new industries and economics.

I get very happy when Cheneys and his replicants make strategy that's this myopic - because it gives revolutionaries nice big vital points to strike, vaporizing old industries, and create massive wealth by seeding new, better ones.

-- umair // 5:25 PM //


Property Rights as Strategic Errors, pt 999

You know the somewhat idiotic and incredibly costly plan to restrict Netcasts of the Olympics by location? Well...

"...Among the unplanned international sporting events at the 2004 Summer Olympics could be the dodging of regional Internet broadcast restrictions and the unsanctioned relay of live online Olympic broadcasts to Americans."

What a surprise. I am rubbing my hands with glee.

-- umair // 5:16 PM //


A Prescription for Business Innovation. Read it and leave a comment if you like - my browser acts up when I visit.

-- umair // 2:15 PM //


Interesting discussion about current technologies that can stop or decelerate global warming and the possible economics.

-- umair // 2:13 PM //


Property Rights - Atkins Edition

Rustling makes a comeback in California. Cool(er than it sounds) discussion of property rights system worked out by competing ranchers.

-- umair // 2:09 PM //



The price of price competition - China's coming environmental costs are going to be massive, because pricing out environmental protection is a key but little-mentioned cost advantage driver. Thanks, Wal-Mart!

-- umair // 2:02 PM //


Rise of the Replicants

"...One of the odd things about a Dick Cheney event is that many people in the crowd and dignitaries on the podium look like Dick Cheney."

Ha ha.

-- umair // 1:24 PM //


Genome Economy - Neurotherapy (Market Drivers)

"...The numbers of sufferers of brain diseases, including Alzheimer's, Parkinson's and motor neurone disease, have soared across the West in less than 20 years, scientists have discovered.

The alarming rise, which includes figures showing rates of dementia have trebled in men, has been linked to rises in levels of pesticides, industrial effluents, domestic waste, car exhausts and other pollutants, says a report in the journal Public Health."

We are so f#$cked. Link. It's not all bad news, though:

Cannabis may help defeat brain tumours. Very interesting. When I was a neuro student, I volunteered at an unnamed neurological hospital. Many of the brain tumour patients smoked regularly - and started after their diagnoses.

Looks like a good time to start thinking about some (cough) alternative agricultural investments.

-- umair // 12:45 PM //


Politics of the Day

What's hapnin in the world this weekend?

the Olympics.

-- umair // 11:32 AM //


Stupid NYT

"...Pink and similar hues - from rose-tinged brick to tangerine and even magenta - have been popular in the last few years with Chinese developers, who have also proven partial to tinted, highly reflective glass and rooftops in the shape of lotus blossoms.

The result is an extraordinary number of garish apartment buildings, office buildings, industrial parks and houses."

One nice casualty of globalization will be the American monopoly on thinking we have a monopoly on what's cool. We don't. Maybe consumers preferences are actually - dare I say it - different in China. Everytime I go back to NYC, I think it's pretty garish, to tell the truth (sorry new yorkers!).

-- umair // 11:25 AM //




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