-
Strategies for a discontinuous future.





Consulting & advisory, research notes, in the press, about bubblegen,
next wednesdays.





Wednesday, November 05, 2008
 

Change the World?


Yes we did.

!!!!!!!!!!!

-- umair // 4:13 AM //


Tuesday, November 04, 2008
 

Welcome to the 21st Century


The 20th century was like this.

The 21st century is going to be like this.

"I ask you to believe -- not just in my ability to bring about change, but in yours. You can choose hope over fear, unity over division, the promise of change over the power of the status quo. If you give me your vote, we won't just win this election -- together, we will change this country and change the world."

See the difference?

Get out and vote.

*bonus reading:

"He told of his encounter with Edith Childs, a city councilwoman from Greenwood, S.C., who had lifted his spirits at the start of his campaign when his rallies were small and no one gave him a chance. She inspired him with her chant of "Fired up and ready to go."

It's a story he's told hundreds of times but probably never so well. He lingered for effect, described the councilwoman's church hat with a broad theatrical sweep of his hand and somehow was able to convey a time when he was small and vulnerable to the crowd of 90,000 that came to see him. "That's how this thing started," he said. "It shows you what one voice can do. One voice can change a room, and if it can change a room, it can change a city, and if it can change a city, it can change a state, and if it can change a state then it can change a nation and if it can change a nation it can change a world."

-- umair // 1:49 PM //


Wednesday, September 17, 2008
 

Lessons From the Macropocalypse


I have been wracking my head trying to write a post for my HBS blog about the macropocalypse.

There's so much to say.

For now, I will say this: the Fed bailing out AIG is kind of jaw-dropping as a total evisceration of the bedrock of the financial system - and orthodox finance and economics.

The real point is this. The time is now.

Now is the time for revolutionaries to step up and build something better, something more real, and something greater.

There will probably never - at least in our lifetimes - be an opportunity for total economic reinvention this tremendous.

Or this meaningful. Because that's what it's really about - not shareholder value, money, or "competitive advantage".

But doing something that means something.

-- umair // 1:59 AM //


Tuesday, September 16, 2008
 

Macropocalypse: Endgame


Quick note from Seedcamp. I have a really, really feeling that today will be really bad. I'm pretty certain that yesterday was by no means the culmination of the collapse. If AIG goes down, we are in serious trouble of a systemic and catastrophic breakdown and unwinding.

-- umair // 1:37 PM //


Tuesday, September 09, 2008
 

Election Strategy 101


How Obama should attack Palin. Someone forward to Axelrod.

-- umair // 2:00 PM //


Friday, August 08, 2008
 

Abnormal


Scott has a point, but I think that Facebook isn't exactly "normal" in terms of expectations, influence, or liquidity options, the secondary markets involved in what's "normal" aren't often made relatively open, the shares traded in them don't go at a >100% discount, and my guess (though the info is opaque) is they're not largely sold directly to private equity, etc...

Look. I think a very thin market in Facebook shares at a $15 bil valuation might be OK. But a larger, more open one at a $5b valuation kind of sends not a great signal. The signal is that Facebook might go straight to some kind of restructuring - which is really the point of the post.

Forget what's "normal" for a second - because there is no meaningful statistical "normal" in industries like venture. Just think about the strategic logic for a second.

Now, I'm not saying I'm "right" - the post is there for us to discuss what Facebook's options are.

-- umair // 8:17 AM //


Tuesday, August 05, 2008
 

The New New Thing


"...That said, none of this means the bailout is a mistake. "My own view is that the world isn't fair," says Zvi Bodie, finance professor at Boston University. "But would it be fair to put the economy into a deep recession or depression? I don't think so."

There's the rub. If the monetary and fiscal authorities are right in their judgment that the risk of an economic plunge of frightening proportions is real, then the Herculean actions they're taking are fair to all of us. What's more, if innovation is the core dynamic in a capitalist economy, the engine of growth and higher living standards, then there will be booms and busts, especially during periods of rapid technological change. It's in the nature of the beast. Like it or not, limiting the downside damage when the boom goes bust is a critical part of the monetary authorities job."

Wow. Are you joking?

That this logic is actually somehow reasonable is fairly depressing. The logic of collective responsibility is actually the logic of anti-markets: the more we invest in bailing banks out, the longer and nastier the crisis is gonna be, and the less productive the economy is going to remain.

Honestly, I don't even wanna write about any of this much anymore. It's almost inexpressibly lame.

-- umair // 6:28 PM //


 

Admin + Sales 2.0


Guys, I'm on vacation.

So I decided to let my friend Kashif write some posts on Sales 2.0. I think you should give him a chance - the writing needs work, I agree, but he's got some interesting things to say.

If you really have a bone to pick, (as usual) leave a comment.

NB - I will consider guest posts on a regular basis - just email me. I will publish those I think are interesting, provocative, relevant, etc.

-- umair // 6:20 PM //


 

Bringing Sales 2.0 To Life


So how can organizations make Sales 2.0 happen?

First things first, Sales 2.0-enabled organizations see the correlation between customer intimacy and sales results. Shocking! There are 4 characteristics world-class 2.0 sales organizations, they:
  • Maximize selling time- remove mundane tasks associated with sales
  • Define a clear sales process focused on high value activities
  • Detail the mechanics of a meaningful conversations
  • Synchronize selling activities with the buying process
In this space, Landslide and InsideView stand out for their innovative approach to time-tested problems. For the evolving sales organization, the good news is that they recently announced a partnership. Awesome, this space is really picking up momentum.

Landslide has turned traditional CRM on its head by putting a premium on sales rep time and consistently enable sales force effectiveness. Remember the sales organization needs to maximize time with prospects and Landslide helps enable that-
  • Details your organization's sales process and the tools required at each step
  • Provides a free sales assistant service for sales reps (off-shoring snobs, their service is US-based)
  • 80% of all functionality is enabled from one screen...within 3 clicks
Insideview- quite simply provides a mash-up of the results that can be used by sales organizations. Why is it good? It works.

Remember our definition of Sales 2.0 is really fundamental: increase proximity to prospects. We will continue to explore innovative companies that help maximize sales rep time and minimize the tasks/ activities that steer reps away from this goal. These are the true Sales 2.0 pioneers.

With that, we take the first steps towards greater sales force effectiveness. Coming up next: what are sales organizations doing wrong?

-- kh // 5:06 AM //


Sunday, August 03, 2008
 

Sales 2.0


Sales 2.0 is a new approach to B2B sales. Quite simply, the Sales 2.0 approach provides sales organizations:
  • Increased proximity to prospects
  • The ability to replicate and standardize selling best practices
  • Superior visibility into sales rep effectiveness
The result is greater intimacy with your prospects/ repeat customers. However the process in effect actually works in reverse:
  1. Top organizations understand what their best sales reps do to sell effectively
  2. Understanding high value sales activities helps detail the sales process steps
  3. Sales 2.0 organizations then take this best process and standardize it across the sales team. In effect, they can upgrade the behavior of their mediocre sales reps.
  4. Of course, the end result is increased proximity to prospects and customers (and implicitly, increased sales with effective use of resources)
The ability to implement this change is enabled by sales 2.0 applications and tools. At this point a good question to ask is:

What about the Sales 2.0 social network?
So far, it's been difficult to see an application has been able to define meta-social network at an organizational level. However, I believe that social networks do exist within within sales. The sales social networks in any given territory are informal social networks that are clustered around prospects with a similar profile or problem set. The best sales reps are able to recognize, understand, build, penetrate, and connect within these sales social networks at a local level and that defines their ongoing success. Engaging the social network is part of the sales reps best practice.

Sales 2.0 applications help you recognize and implement such best practices. Coming up next: How?

-- kh // 11:10 PM //


Monday, July 14, 2008
 

Strategy Note 001


Hi folks, we have published the first strategy paper from my Lab today - details are here if you're interested in downloading.

Enjoy!!

-- umair // 2:38 PM //


 

Bubblegen 08


Hi everyone. I hope you're all doing well.

From today, I am going to be publishing quite a bit more frequently at both my Lab and my blog at Harvard Business.

If you're interested, please update your feeds/etc accordingly.

Bubblegen is going to be be here, don't worry - we will be discussing the heavily theoretical stuff (uhhh...just like we normally do :)

-- umair // 2:04 PM //


Thursday, May 22, 2008
 

The Real 2.0


Very good stuff, highly recommended.

-- umair // 5:16 PM //


 

Open > Closed


A nice example of how to get it wrong.

Hey, look, I used an example that's not Google...!

-- umair // 5:14 PM //


 

Microsoft, Google, and the Future of Search


My take on Microsoft paying for search traffic is up on the Media Lab's blog. Enjoy!

-- umair // 4:05 PM //


 

Admin


"...i usually find it hard to despise. but umair is full of shit re: @scobleizer & "Valley is Blowing It" post: http://tinyurl.com/6hf2vh"

lol. Look - call me full of shit all you like. That's fine, and it helps us have good discussions.

But isn't "despise" a bit ott?

Would Dave really feel he had the license to ummm...despise me...if I wasn't a brown dude in London?

No, I'm not saying Dave is racist. But it sure feels like there's something deeper than mere disagreement happening. And it's perhaps easier to jump into "despising" people who are different from you.

I take a lot of attacks. Funnily enough, the people that make them usually come from a very specific demographic.

So I don't feel like Dave would have said this about someone, well, more like Dave. Maybe that's wrong, I'm sure many of you think I'm being too sensitive, I'm probably more than guilty of it myself.

But from my perspective - it doesn't feel like debate: it feels like hate.

This will be the last admin for a while, I've had enough of this navel-gazing.

And thanks to everyone for all the feedback on yesterday's thread - it was really, really helpful, awesome stuff.

-- umair // 3:27 PM //


Wednesday, May 21, 2008
 

Love > Fear, Special Bubblegen Edition


So I got this tweet from Kate:

"... Am I allowed to say that I think Umair Haque is a little... offputting? He's got great things to say, but I just don't like reading him."

Now, I think that's actually on the money - so thanks, Kate. Man, I don't even like to read what I've written lately - it's ugly.

When I think about it, there are three reasons why.

The first is personal. My mom was pretty sick. She's better now, but it was a rough couple of months.

The second is that I've just been working way too hard (book, lab, etc).

The third is a bit deeper. Before, it was just kind of wonkish fun for me to write about this stuff. But the more I've thought about it, the more I've gotten a little angry about the ways in which business is failing us. I've really been feeling it - instead of just detachedly analyzing it. Maybe a bit too much - because it's bleeding through in how I've been writing lately.

So, I think I am going to try and back off a little bit - and apologies if it feels like I'm shouting at you. Do me a favour and let me know if you feel the way Kate did.

-- umair // 3:00 PM //


 

What Good Beats Evil Means


"Umair is fighting the good fight, taking the capitalist investor at his own evaluation, that he creates value by doing good.

The fact is, the capitalist is just an exploiter making his profit any way he can, whether he does good or ill.

I believe Umair when he says there are opportunities to do good AND make money investing in solving big problems ... but that doesn't mean there aren't opportunities to make money fucking the world up and causing misery too ... and people will take those.

While VC and good *can* be aligned, Umair's wrong to think it's an "inevitable" law of economics. You need people with integrity and virtue to see and do the right thing. Not just those following their self interest."


Interesting comment from Phil - but it couldn't be more wrong.

If you follow bubblegen, you'll note that, in fact, I do very much think business as usual is more often than not deeply evil - capitalism is assuredly not always good.

What's different about the edge is that good beats evil.

Guys, at this point, I say this every day, and some of you still don't really get it - don't understand what this simple statement really means.

I think perhaps that's because it's such a radical reversal of the way we're used to thinking about business.

So let me make this as absolutely, totally, utterly simple as possible.

Don't complicate it. It means exactly what it says: not a moral judgment - but as razor-sharp economics.

Yes, there are opportunities to profit by evil - from misery. But there are now greater opportunities to profit by doing good than by doing evil.

That's not a belief. It's an economic fact. If you look at the numbers, they are unambiguous.

Google didn't just launch Google Arms Trading. They launched Google Health. See the point?

-- umair // 1:17 AM //


 

Selling is for Lemons


Q: Can better advertising save Microsoft from strategic irrelevance?
A: aahahaha.

"...I suspect what Microsoft would most like to instill in people's minds is they are innovators and leaders."

Windows? I kiss [email protected]

The epic, epic lulz.

-- umair // 1:05 AM //


Monday, May 19, 2008
 

Admin


"...But the problem with your blog is you don't write often enough. You make false promises (etsy article). Then you complain about communitied out as if there is a gatekeeper. I know you won't post this, but this is for your benefit."

Dasher, take a deep breath. Relax. I give you as much as I can. The Etsy article will be up as time permits.

FYI - Both here and at my HB blog, it's only comments with personal attacks that are modded out.

-- umair // 2:52 PM //


 

How the Valley's Blowing It


Scoble:

"...I'm a noise junkie.

...I've been studying noise and news now for quite a while.

...let's do a little definition of the difference between news and noise.

NEWS: tens of thousands dead in China quake.
NOISE: BrianGreene: some pirate is playing old radio nova tapes on 92FM dublin, with old jingles and old ads. adverts for rent a 20″ TV 48p a day (48 pence!)"


Bolding's mine.

You know this would be funny - if it wasn't so sad.

Why is the Valley so lame these days? Why aren't revolutionaries solving any real problems?

Because, apparently, they're navel-gazing so hard, they can't see gigantic meteor-sized economic problems crashing and exploding around them.

For my money, the real issue isn't (for the love of sweet Jesus) news, or noise. It's the hundreds of thousands of people who just died in China and Burma.

You know - the ones Scoble just...ummm...ignored with the zombified glibness of a frat-boy at a kegger.

Those tragedies point to a whole slew of problems that need to be solved: disaster relief, income inequality, political repression, hunger, thirst, censorship/acess to information...the list is endless.

To Scoble's credit, he's discussed exactly one of these topics lately. That's better than nothing - but it's not nearly enough.

Honestly - it's no wonder the Valley's trapped in a profound state of decay: it seems to have lost the ability to, well, think.

-- umair // 2:12 PM //


Friday, May 16, 2008
 

Bubblegen, A User's Guide


So, I get a lot of emails these days (thanks :) . Many of them start with (I kid you not) "I love what you write!! I don't usually agree, but..."

OK. Guys, let me try and explain the point of bubblegen very, very simply.

I think a lot. Then I build models (you can see some of these in the ppts). The models forecast future outcomes. I keep notes on these forecasts here at bubblegen.

Now, the thing is: these forecasts are usually surprisingly accurate.

I called media hyperdeflation literally years ago - in 2004. I called the death of Yahoo years ago, too - in 2005. I pointed out Facebook's errors when the kool-aid drinking was in full effect. I continually point out why Google rocks everyone. Blah, blah, this isn't a scorecard - you can trawl the archives for tons more examples.

The point. Yes, you can disagree. Or call bubblegen contrarian (really? contrary to who? Jerry Yang? Mark Zuckerberg? lol). It's irrelevant to me.

But you're perhaps doing yourself a disservice, by missing the point of bubblegen entirely.

If you're taking the time to read what I write, your fundamental questions should be - even if you disagree with their logic - why are these models so consistently accurate? How do these models really work? What does that imply for next-gen strategy, advantage, and management?

Let me sharpen that.

A few years ago, I went to talk to the C-level guys at a Giant Internet Company who's now on the ropes.

We had a nice few days of chats. But they never asked those fundamental questions - and I was a kid at the time, so I didn't press them - instead, they just said: "We love what you write! We don't usually agree, but..."

And the rest - unfortunately for them - is history.

Now, to some of you, that sounds arrogant. Sorry - but nothing could be further from the truth. I put a lot (a lot) of work into sharing this stuff with you, instead of keeping it locked down. I'm simply pointing out that - as for the guys in that boardroom - perhaps a deeper investment would allow you to get more out of it.

-- umair // 12:55 PM //


Thursday, April 24, 2008
 

Communitied Out, Pt 37771


So Tim O'Reilly just kicked off the Web 2.0 conference with a talk about we're not solving big problems. Wait - that sounds just like what we've been discussing repeatedly this year.

Paul Graham just wrote an essay about why good vs evil is a principle to live by for companies. Wait - that sounds like something we've been discussing for the last four years.

Lol. Nice to see you guys finally joining the discussion. An acknowledgement might be nice (if, of course, one is due).

NB - Thanks to everyone who sent me a heads-up about this.

-- umair // 8:03 AM //


Monday, April 07, 2008
 

Bubblegen: A Retrospective


So I think many of you are new to bubblegen, and my HBS blog.

Some of you are understandably a little bit skeptical. Who is this guy, and what the £^%*$! is he talking about?

Here's what we've been discussing with investors, startups, and boardrooms for the last few years.

In 2004-5, we began discussing how the economics of media were undergoing profound transformation as a result of cheap interaction.

In 2006, we began discussing how new modes of coordination, like peer production, were reshaping production and consumption.

In 2007, we began discussing how markets, networks, and communities were the focal points of an edgeconomy.

In 2008, we will be discussing how the edgeconomy requires firms to fundamentally rethink DNA, strategy and advantage.

We will be doing that through my new organization - the Havas Media Lab. Which, if you think about it for a second, is one of a very, very small handful of organizations in the world dedicated absolutely to next-generation strategy.

The point is: bubblegen has been shaping thinking in this space for years now.

I wrote this article about why copyright was economically broken and strategically irrelevant, for example, in 2004.

That was when Larry Lessig was focused on IP. He was thinking about the legal aspects - I was thinking about the economic aspects. The point of the paper was to try and discover new paths to advantage in a world where old ones were breaking down.

Now, I can't give you all the answers.

But if you've been reading bubblegen through the years, I suspect you have gotten a tiny bit closer to at least some of the answers.

The edgeconomy has a funny effect on people: it's so counterintuitive, often people refuse to believe it exists at all.

That's because yesterday's assumptions are incredibly difficult to truly let go. How can Google profit by not being evil? How can Wikipedia exist? Isn't Twitter just a fad? Etc.

Let me offer a very different example.

Look at Hillary. How could Obama - using near-perfect edge strategy - close and then reverse the gap? It seems impossible to Hillary's team - still playing by yesterday's rules.

What Obama's team has realized is that a world of cheap interaction is a very different world economically - and so they are focused on very different kinds of advantage.

Bubblegen has been at the forefront of exploring that world for years. You're welcome to join the discussion. You will get a lot (lot) more out of it if you recognize that I do have the expertise to guide you through these issues - and if you can see the world with fresh eyes, not jaded ones.

-- umair // 1:24 PM //


 

Communitied Out


Why is blogging a pain? Here's an example.

Fred recently wrote a post responding to the latest post at my HBS blog.

Today, the highest ranked comment on Fred's discussion is by a guy who clearly hasn't read bubblegen much (ie, I didn't start writing about peer production yesterday, but before most of the guys he's talking about were doing it).

Which requires me to then have a not very productive session of pointing exactly that out.

That's a pure transaction cost, which makes building communities much harder than it should be.

That's fine - I can do it every once in a while. But amplify that by like ten billion and you get a tiny taste of what guys like Om have to deal with.

The point is: we need better DNA to make communities cohere.

Twitter, for example, is a very nice start.

So here's my Twitter, if you want to add it.

-- umair // 12:47 PM //


Friday, April 04, 2008
 

The Crisis in Strategy


Hi guys, this week at my HBS Digital blog, we're zooming out to discuss how the banking crisis is really a crisis in orthodox approaches to strategy.

Sound like fun? It is - a really fun post to write, and hopefully to read too. Check it out if you're interested.

Thanks for all the comments and feedback over the last few days - it was very, very helpful. I have been reflecting on what you guys said, and am going to try and incorporate quite a few of your suggestions.

Here's how.

I will be writing quite a bit more frequently at HBS Digital - which is also where I am going to start adding things like frameworks, industry-specific posts, and suggestion threads - so please add it to your feeds/bookmarks/etc if you're so inclined, and hungry for this stuff.

And, of course, please let me know if this sounds good...!

-- umair // 4:50 PM //


Wednesday, April 02, 2008
 


Hey guys, thanks for all the comments below. There is clearly a lot of interest in more hands-on advice.

I need two things from you guys to do that most productively.

First, more concrete needs - what exactly would help the most?

Second, to open source it somehow. How can we all help each other more effectively? Would open threads here help?

-- umair // 1:14 PM //


Tuesday, April 01, 2008
 

Why 2.0 Sucks


Do you sense a growing frustration across the 2.0scape?

Good - it should very much be there.

Why? Because we're not solving real problems anymore. The economy has massive structural flaws. 2.0 can fix them.

But focusing on ad nets and minigames sure won't - and we'll just spiral into more and more navel-gazing, name-calling, and frustration.

Would it help if I did a post about industries that need to be revolutionized?

-- umair // 2:53 PM //


Saturday, March 29, 2008
 

The Acceleration of the Edgeconomy


"...in the ten days since this post, we can see business-as-usual continues merrily on its way

except as a "amrketing concept", i think "edge economy" as espoused by umai haque is a paper tiger, with zero practical value

am i wrong?"


Ummm....how can I put this.

In the ten days since this post, apart from a major investment bank, well, collapsing, the entire global financial system has begun the process of systemic deconstruction - something not seen for the better part of half a century.

Needless to say, the edgeconomy is very, very real.

You can slam bubblegen all you like, disagree with the edge - that's fine. But you're living on another planet if you think the economic landscape these days is anything resembling business as usual.

We will be talking about more macropocalypse in great detail shortly.

NB - Gregory, it would do you good to stop trolling and start listening to the discussions a bit more.

-- umair // 4:45 PM //


Monday, March 17, 2008
 

The Fourth Horseman of the Macropocalypse, Redux


Guys, I'm going to write the Bear/macro situation in detail later. It's really too depressing to dwell on at the moment.

Here's the quick version. You will read a lot of complicated analyses today.
Some are very, very good. The real story is, I fear, pretty simple, and very scary.

As simply as I can put it: the Fed has just signalled with absolute certainty that it has absolutely no interest in helping disinfect the financial system.

The Fed just signalled, with absolutely certainty, that it will do anything and everything in it's power to help stave off the accounting that's long past due. And without that accounting, there is no incentive for new DNA.

Bailing out Bear comes, ultimately, at the expense of every security holder across the larger economy. Because the Fed just vaporized (again) the incentive for a true process of settlement and valuation of the infected assets to really begin.

Do you think JPM has different incentives than Bear? Of course not. The machine's just as broken as it was last week - there's just more grease in the gears.

That's the Japanese story: spending almost 20 years trying to avoid a recession by devaluing the economy into oblivion - because the truth of broken balance sheets and infected DNA was too painful to face.

Or, a little more darkly - because the cronyism between banks and central banks was intense enough to let both parties abdicate their fundamental responsibilities.

It's funny, isn't it - how the Fed's bailout makes no mention of Bear management. What a coincidence.

We are now entering dangerous waters - the kind where economies get blown up for decades.

I suggest you all spend a few hours thinking first about how to make sure Bernanke's shock and awe approach to policy doesn't end up...ummm...destroying you personally - and then we can chat about strategy, finance, etc, later tonight.

-- umair // 10:10 AM //


Friday, March 14, 2008
 

Edge Principles, FriendFeed Edition


Here's a textbook example of how not to think strategically.

Duncan looks at the numbers and concludes Friendfeed and Twitter are subsitutes. It should be pretty obvious - if you think about the dynamics - that they're complements.

Strategy isn't spreadsheets - and it sure ain't disconnected usage numbers.

The real point is: Friendfeed is a next-gen, open version of Facebook's social feed.

Funny - what was that we were discussing a few months ago? About competition for openness would ultimately begin to eviscerate Facebook's pseudo-platform; how the evil at the heart of Facebook would stop it from moving past last-gen games of domination?

Exactly.

That's an edge principle: good beats evil. It's not wishful thinking, it's not utopianism, it's not idealism - it's razor sharp strategy for a new economics.

-- umair // 6:08 PM //


 

Companies Are Not Pimps


Perhaps the biggest problem across the economy is that our thinking is permeated by yesterday's stale assumptions.

There's a conference at LBS today - called "Monetizing Social Networks".

Uggh.

These poor kids. Most MBAs come to B-school wanting to do cool things - and they get crushed into thinking business is about "product" and "monetization".

It was, at least a little bit - in the industrial era.

But that was yesterday.

If there's one single lesson you apply at the edge, let it be this: business models happen.

What that really means is: we don't "monetize" resources. We co-create and co-produce value.

And to do that, we have to experiment, deeply and intensely.

Monetize is an ugly word.

When you try and "monetize your users", you accept the almost obscene assumption that people are meant to be pimped out, sold to the highest bidder, resources to be slashed, burned, and exploited.

But that's not how the edgeconomy works. Businesses need what connected consumers have to give more than connected consumers need what businesses have to sell.

Let's put that a little more formally. Monetization is ugly because it blinds us to the truth that value must flow in many directions. That's the essence of edge strategy, in fact.

That's why businesses that aren't deeply, durably connected to people are already falling apart (hi, Facebook, Gap, and Microsoft).

Just ask yourself: how many firms industries has "monetization" already killed?

-- umair // 1:13 PM //


 

AOL + Bebo


I wish I could say this was important, but it's not. AOL is a company coming apart at the seams. Bebo is a company that long ago stopped itself from realizing it's full potential.

In that sense, it's a match made in heaven. Unfortunately, it's also a perfect example of orthodox strategy - growth/share thinking - at it's worst.

-- umair // 1:10 PM //


 

The Poseur


Mark Cuban bans blogs. Lulz. So did China, Iran, and the army. And we know how well that went.

So is this just noise?

Actually, it's like an unwritten Kafka novel about authoritarianism: when Wal-Mart is more 2.0 than a self-proclaimed revolutionary who keeps investing in industrial value chains (hi, HDnet), no less, it's (troublingly) ironic - and a sign of all that's going wrong in the Valley and in the mediascape.

-- umair // 1:05 PM //


Thursday, March 13, 2008
 

Goople vs The World


Hi folks, this week at my HBS blog we're doing something a bit different. I haven't discussed next-gen strategy in depth for quite a while.

So that's what we're doing this week - with a focus on why it seems that, no matter how hard everyone else fights them, the next-gen media pie will seemingly be split between Apple and Google.

Check it out, leave a comment, discuss away there, etc.

-- umair // 5:15 PM //


Tuesday, March 11, 2008
 

A Wake Up Call For The Venturescape


Let me ask a question. Is SXSW fiddling while Rome burns?

We've been discussing Zuck, Sarah Lacy, Facebook's privacy controls, etc. But perhaps we don't have the luxury of that self-indulgence.

Why not? Because the global economy is about to get hammered. The signals the economy is sending are, to put it bluntly, very, very scary. As Lex notes:

"...Now, after a very nasty week in markets, the whispers are that it might even be the big one: the worst crisis since the 1930s. Signals of distress abound: Friday’s non-farm payroll data were awful, the US auction rate market is closed, banks’ shares are collapsing, interbank rates are back in the danger zone and debt spreads are ballooning."


From this perspective, Yahoo + Microsoft, Google + Digg, Zuck + Lacy - who cares? We're lost in the trivial. It's like happily painting your toenail - while Freddy Krueger closes in on slashing your jugular.

Let me put this to you another way. Most of us in the venturescape and mediascape think orthodox business - ie, working at a corpocracy - sucks.

Yes, big business sucks. We all know it. But the question is: what does our feeling really mean? Why do we feel that?

Because the DNA of the industrial era firm is sucking the life out of the economy. Once upon a time, industrial era firms were engines of value creation. Today, they're prisons, where trauma is institutionalized into everyone who comes into contact with them.

That feeling - like a dull toothache - is a massively powerful heuristic that something is deeply wrong; wrong with McJobs; wrong with $100m bonuses for value destruction; wrong with the evisceration of variety, choice, and happiness; wrong with the long slow death of culture and community; wrong with the sinking intuition that like you've signed away your life when you walk into that cube, all for a few bucks and free lattes.

So who reinvents the firm? We do.

The power of 2.0 isn't minigames and ad nets: it's the new DNA it brings to the table.

There are two paths ahead of us. First, a global crisis explodes, and the economy is reinvention via the new genetics of 2.0 is forced upon it slowly, over 5-6 years. Second, we take the initiative, and reinvent it fast, over 2-3 years.

As a naive and trivial example: no one loves Wal-Mart - but no one is helping Wal-Mart think about love.

Here's a better example. Big pharma's manipulation is lame and cheesy - but we're all complicit in it - except Google and a handful of startups, who are busy redesigning the pharma value chain.

That's the point. If the venturescape wants to remain relevant, it has to solve the problems that are causing the macropocalypse to accelerate.

That's always been it's job: to power renewal. Today's crop of VCs are nice guys - but fast being corporatized: comfortable in their myopia, highly risk-averse, cronied into each other, and, unfortunately, totally out of tune with the problems they should be solving.

Ad nets, social nets, and minigames won't change the DNA of the economic system. Radical new approaches to consumption and production across the industries that are broken will.

Let me put it more sharply. I think we have two choices. Help fix things, and get rich, or just get blown up along with everyone else.

Let me make that concrete.

-For venture guys, that means: most of you are going to have to develop new investment theses, centred on redefining industrial era DNA. What do next-gen value chains really look like? What do the economics of production and consumption look like tomorrow?

-For entrepreneurs, that means: forget about hot products/services (ads, games, etc) and tech. Think about DNA, and how it can reshape the markets and industries that are crying out for help. Where does business suck today, and how can you make it radically better?

-For corporates, that means: stop making acquisitions driven by growth/share thinking. That's easily dominated. Make acquisitions driven by DNA, and use it to suck the lameness out of your strategy - fast.

-- umair // 10:22 AM //


Monday, March 10, 2008
 

Lameness Is In the DNA


Sarah Lacy blows an interview with Zuck, bloggerati/twitterati go crazy.

There are lots of interesting perspectives about this, like Jarvis's.

I think the heart of the problem is different.

At a conference about radically democratizing media, is it any surprise that, well, a journalist questioning a CEO ended up being a waste of time?

Of course not.

See the irony yet? What happened on stage was a rigid, controlled, 1:1 interaction that's reminiscent of the industrial era.

It's exactly the wrong kind of DNA. Why are we organizing things industrially when we're building things that aren't industrial?

Now, sure. Sarah's interview was (really) lame. Other interviewers might have done a better job. But that's the point of DNA: it makes some outcomes much more likely than others.

I took a lot of heat for slamming TED's DNA. Take this as another example of the same. Orthodox conferences are nice, but they're not very productive.

Why not? Because their DNA makes productive outcomes are very (very) hard to achieve - because the DNA itself prevents the kind of interactions that lead to cool stuff.

-- umair // 1:04 PM //


Saturday, March 08, 2008
 

Big Swinging Digg


So, another rumour making the rounds, a bidding war for Digg involving MS, Google, etc.

I'm a bit dubious. MS is maybe inept enough to get caught in a Digg bidding war. There's no money more desperate than MS money in today's mediascape (say thanks, Yahoo shareholders) - because there's no player with a more flawed understanding of next-gen industry economics and structure (evil, closed, etc).

But I have a hard time believing Google's involved in a bidding war for it.

Digg is nice, but it's strategic impact is zero. It should be profound, but Kevin and Jay have consciously made the decision to be geek-celebs instead of doing something cool. That's fine; but it's crippled the potential value a great idea like Digg can really create.

Hence, I'm not sure what exactly Google would be interested in. It's not as if Google's short of attention, geek-cred, psuedo-quant algorithms, minor-league celebs, code, advertisers, etc.

Bring a new value chain design or new market space to the table, and we're talking - but Digg has failed exactly and precisely to do anything on that more meaningful strategic level.

Blah, blah, the real point is: anyone who's willing to pay the multiples/price point mentioned - north of $200 mil for a player with little to no strategic impact is making a fairly serious strategic error. That, of course, includes Google - maybe TC is on the level, in which case it will be the first major error Google has made in a long (long) time.

-- umair // 2:41 AM //


Thursday, March 06, 2008
 

Next Weds Tonight (Thursday :)


Hi folks, Next Weds is on tonight (Thursday the 6th).

We will be meeting at Detroit Bar on Earlham St in Coven Garden from 7pm, all are invited, bring a friend...

-- umair // 11:34 AM //


Wednesday, March 05, 2008
 

Next Weds Cancelled (Sorry...)


Hi guys, I am kind of slammed tonight with work, so let's try and do next Weds tomorrow night (Thursday).

I'm really sorry about this - I know quite a few of you were looking fwd to it.

If tomo works for you, leave a comment so I can get some idea if enough people can make it.

-- umair // 12:08 PM //


Tuesday, March 04, 2008
 

Can Facebook Survive F8?


Why does it feel more and more like Facebook is about to hit an inflection point - of the wrong kind, where growth flatlines, and then usage decays?

Simple. The reason, ultimately, is F8, which will be seen as a major error in the near future: because it's killing the value of the network.

There's an interesting discussion at VentureBeat about exactlythat; we discussed this ad nauseum quite some time ago.

The logic at VentureBeat is that F8 fragments the larger network into app-specific networks, kills networks effects, and destroys value.

That's exactly the converse of what we discussed: that F8 is a pseudo-platform, because there's no real hard lock-in present, because staying closed actually destroys value. So what we should see - and what do see - is endless numbers of apps competing for network effects, but failing to realize them; because the iron curtain of f8 minimizes the value of said network effects.

That's a tricky set of dynamics to really understand - just read this and it should be very intuitive.

If it ain't, leave a comment and we can discuss :)

-- umair // 2:35 PM //


 

The Future of Brands, Special Eisner Edition


"...Most recently, Tornante, which is Italian for "hairpin turn," paid $385 million for Topps, the longtime maker of trading cards and Bazooka bubble gum.

Mr. Eisner is keeping his ultimate playbook to himself, but drops a few hints.

"With Topps, I was interested in a company that could be a far bigger sports and entertainment media company," he said. Among his ideas are the digital delivery of trading cards and the creation of Topps-branded sports movies or sports channels on cable. As for Bazooka Joe, the gum mascot, he recently told a trade magazine that "it would be foolish of me not to try and build that character into something as much as or more than he ever was."


Wow. That's kind of awesome. Eisner wants to make Bazooka Joe 2.0.

I can see it now - Bazooka Joe 2.0 friends you on Habbo Hotel, pings you on Skype, he stalks you on every network/community you belong to, until you capitulate at last...and buy some gum.

We've been discussing - here and at my HBS blog - why brands are in decay, what next gen branding will look and feel like, etc.

If it's not intuitive yet, here's a great example of how not to do it.

That's more interesting than it seems, because the original Bazooka was a nascent example of branding done quite well - a comic that radically altered the experience of buying, well, gum.

Taking branding to the edge doesn't mean just making a "character" like Bazooka Joe or trading cards a la Topps "interactive". It means rethinking the economics of communication, the DNA which organizes it, etc, etc - to redefine value creation.

-- umair // 1:42 PM //


 

Weapons of Mass Destruction


Apparently, "Mass Interpersonal Persuasion is finally here".

No, it's not. That's called a umm...conversation.

Attempt manipulation all you like, but note - the costs far exceed the benefits.

Look, the other points on that list are quite good. But this one is a value-killer.

Why is evil the default state of thinking about business? It's just a stale leftover of the industrial economy. We don't have to think about business that way - and we shouldn't.

-- umair // 1:39 PM //


Monday, March 03, 2008
 

The New Economics of Brands


Hi everyone.

This week at my Harvard Digital blog, we're plunging further into the heart of the edgeconomy - getting very specific about what makes edge strategies different.

Last week, I noted a massive paradox: that Google has built the world's top brand - without advertising. But I didn't explain how.

The week before, we discussed why DNA - how companies organize and manage economic stuff - is so important. But again, we didn't discuss how - how does DNA impact strategy?

This week we're gonna tackle exactly those hows.

So if you're interested in following the discussion from the last couple of weeks to a preliminary conclusion, if you're interested in next-gen branding, strategy, advantage, etc - click over.

If you visit, make sure to read the comments - several of them are extremely insightful and add a huge amount to the discussion. Better yet, comment away, and I will try and get a video response up in the next couple of days.

-- umair // 10:11 AM //


Friday, February 29, 2008
 

Comment of the Month


From the TED thread:

"...Have you read the book Homo Sacer by Giorgio Agamben, an Italian philosopher? (I just finished it). While I find his style irritating and repetitive, I think he provides some deep thinking that supports your thesis here.

He writes about biopolitics (following Arendt and Foucault) but takes it further than them, identifying the root of Western political practice and its result, which he calls "the camp". (Read concentration camp, refugee camp, etc.)

Homo sacer (the sacred man) lives bare (naked) life - outside law, yet still in relation to it as exception. They are always in relation to a power that no longer recognizes them as having agency. They are men who can be killed without it being homicide, but cannot be sacrificed.

"In the final analysis...humanitarian organizations...can only grasp human life in the figure of bare or sacred life, and therefore, despite themselves, maintain a secret solidarity with the very powers they ought to fight." (133)

"...the camp is the new, hidden regulator of the inscription of life in the order--or, rather, the sign of the system's inability to function without being transformed into lethal machine." (175)

The book and its ideas require a great deal of thought, but when I read your post about TED it immediately resonated. In this reading, TED doesn't address biopolitical issues, and is, in fact, in a compliance with the very system that causes the problems to begin with.

This doesn't necessarily make TED a bad thing. Raising awareness of issues is helpful. And yet, it will get nowhere in creating real change, which requires an entirely new political system (acc. to Agamben).

Personally, I am not entirely sure where I stand yet on Agamben's ideas; I need to think and read more. But I thought I'd offer up the source, as I think it might help your argument."


Bolding's mine. An absolutely killer comment - reread it.

The bolded stuff has a deep resonance with one of the reasons why the DNA of the corporation (conferences, etc, etc) is in decay. It recognizes no agency but that of the boardroom.

In a world where the costs of doing business as usual are being revealed as well, the destruction of the world; in a world where power is shifting to connected consumers - these kinds of institutions are is in almost total decay.

Hey, Elizabeth - thanks. That was kind of awesome.

-- umair // 2:09 PM //


 

The Economics of the Macropocalypse


Sometimes, econ can be like crack. Look at a few numbers - hey, all's well with the world.

But it's not the numbers that matter. It's the relationships between the numbers that matter.

The Economist, for example, says:

"There is no denying that for some middle-class Americans, the past few years have indeed been a struggle. What is missing from Mr Obama's speeches is any hint that this is not the whole story: that globalisation brings down prices and increases consumer choice; that unemployment is low by historical standards; that American companies are still the world's most dynamic and creative; and that Americans still, on the whole, live lives of astonishing affluence."

This is yesterday's orthodox argument. And most serious economists take this story less and less seriously.

Why not? Because...ummm...the global economy is in a state of shock. If this story was true, we wouldn't be melting down.

A much more plausible story is this - one that forward-thinking economists are beginning to take very, very seriously.

Real wages have stagnated for decades. But corporate profits are at their highest. That means the net effect of global price competition is just to transfer wealth from the poorest to the richest.

China's exchange rate manipulation has flooded the US with artificially cheap goods. The real price of those goods is the ongoing implosion of the dollar, which, combined with the lack of growth in real wages, is, for most of the country, like being punched in the face - and then kicked in the gut.

Oh yeah - the other price of accepting China's gaming of exchange rates is a country of underemployment and gray market pseudo-employment.

Hey - welcome to your new McJob! We don't give a damn about you, we won't help you learn any productive skills - we just want to use you and throw you away. We all lose in the end, because innovation and productivity die, but at least we win for now (sucker).

Unemployment is also low because it's become chronic, and so a huge number of unemployed aren't counted at all - they've become invisible. We can only measure many of these guys indirectly - ie, 1% of the population spends time in prison, and is effectively excluded from making a productive contribution to the economy.

And that's not even getting into Chinese social costs - which is basically massive underinvestment in any kind of basic institution necessary for a nice life.

Meanwhile, because we've been loooking at superficial numbers that don't mean much - CPI, for example - while ignoring the obvious fact that exploding global demand is going to spike asset and commodity prices to levels never actually seen before.

The flipside of looking at superficial numbers is that we've been fooled by the boardroom into thinking that profit is a number that's economically meaningful. It 's not. And that means we're going to have to spend years trying to make sense of, well, the entire edifice of business of itself: another massive set of costs that we will all have to jointly bear.

That's mostly why America rarely still launches the world's most dynamic and interesting companies - it's just that many of the world's most interesting companies still choose to list in the States.

Ok. Deep breath. What does all that mean?

The economic equivalent of Freddy Krueger standing in the shadows: stagflation. It's just a word to many of you - but from an economic point of view, stagflation is a diagnosis just one step shy of terminal disease.

The Street has (finally) cottoned on to it now, we've been talking about it for months, it's almost inevitable at this point.

And it will probably feed back to our biggest creditor, China, probably cause them to revalue their currency, since their economy will break anyways - and then the real fireworks will begin.

-- umair // 1:16 PM //


 


Etsy/Google post - sorry guys. It's a longer post, and I've barely had time to breathe this week. Hopefully in the next few days.

-- umair // 1:46 AM //


 

The New Sources of Advantage


Interestingly, Fred talks about conviction as a trait that makes a great investor.

I think there's a deeper lesson. A deeply felt sense of conviction is something that makes a great company.

Unfortunately, it's something most companies, as they've become corpocracies, have lost. Most companies have nothing - nothing - they won't sell out.

In fact, being "corporate" has meant, for the last hundred years, exactly that: the willingness to compromise your conviction for cash.

That's nothing short of insane: it's a totalitarian kind of economic nihilism.

And so is it really any surprise that we're discovering that this kind of defective DNA creates little real, durable value?

In the edgeconomy, the game is very different. Anyone can sell out like that - in the blink of an eye. It's the ability to do the opposite that's a very real source of advantage.

Something we'll be discussing in detail at my HBS blog soonish.

-- umair // 12:33 AM //


Thursday, February 28, 2008
 

With Friends Like This...


RWW guys - thanks for the discussion, kind of.

It's funny. Do you think there's a tiny contradiction in saying I'm "out there" - and then spending thousands of words discussing exactly the topic I raised?

Lulz.

Maybe it was the right question, and maybe what I'm talking about isn't very "out there" at all.

Anyways, Bernard's discussion is kind of fun. You guys should check it out.

-- umair // 10:29 PM //


 

The Long Tail of Gigantic Companies


So, there's an assumption floating around the b-sphere as a result of the Etsy discussion we kicked off that's a bit off the mark.

Here's how the 37Signals guys put it:

"...The true giants, like IBM, Microsoft, and Google, come to life so rarely that the chances of random company X being one of them is slim to the point that we might as well try to guess who’s going to be struck by lightning tomorrow or win the lottery."

In fact, it's the opposite.

Edgeconomy = turbulence + hypercompetition.
Turbulence + hypercompetition = lots of revolutionaries, lots of upsets, lots of volatility.
Lots of volatility = lots of new giants.

You can look at the numbers (hi, macro crisis). Or you can just look around. Where are they? Everywhere - literally. Mittal, Zara, Baidu, Embraer, etc, etc...

So nextism, if you like, is kind of important. Because it lets us understand what these guys have in common - if anything - that yesterday's incumbents don't.

Put another way, if you're trying to create new stuff, nextism is dangerous - it stops creative thinking. But if you're trying to understand stuff, nextism is an essential component of analysis.

-- umair // 2:38 PM //


 

BankrupTED


So, let me be a bit more blunt than I'd like to be. Do conferences like TED do more harm than good?

It's not just the fact that TED is just a wee bit pretentious.

The problem is simple. The underlying assumption is that we can help solve the world's big problems by putting a bunch of interesting people in a room and talking about stuff.

We can't.

In fact, exactly the opposite is true. The way we can solve the world's problems by involving the people who are suffering as an essential part of a living, evolving solution.

By making them part of the DNA.

That's not an argument: it's an economic fact. It's why guys like Muhammad Yunus change the world and win Nobel Prizes.

So TED - I think, just maybe, that what you're doing is even more damaging than mere elitism.

You're putting forth a new colonialism for the 21st century, a strange hybrid of techno-neo-hippie-colonialism.

But you've left out the most vital parts of those philosophies; the premises of your thinking are still the same: we're better than you, we can solve your problems, let us help you (instead of involve you).

Economic history, of course, has been a harsh judge of this approach. We know how it ends up: creating even more misery than went before. It's helping societies build the right DNA that fuels growth.

And that's exactly why, though TED is sexy, it's also kind of intellectually bankrupt: it's actively helping stop new DNA from happening.

Let me put it even more sharply. There have been gatherings like TED for hundreds of years. But the vast majority of the world continues to live in bone-crushing poverty, misery, and fear.

Think about that for a second.

That's an existence proof the size of the Milky Way that stuff like TED isn't part of the answer - it's part of the problem. It's a negative equilibrium: all that great thinking is directed to the place where it's least productive.

***

NB - Guys, I'm enjoying the debate, but note that I am not "bashing" TED. Nor do I think it's just wankery. I enjoy watching the talks. But I'm not sure it does more good than harm.

Let me put it another way. Conferences are one way to organize and manage stuff - a kind of DNA.

When the stakes are low - a conference for media deal-making or something - that's fine.

But when you get lots of brilliant people in one room, surely there's a way to organize it so more value is created than just lots of interesting talks. Surely there's a way to amplify the productivity of conferences like TED - because right now, it ain't too high.

Yes, there are pros to TED. But we have to measure more than pros and cons: we have to think about opportunity cost as well. That's what I mean by least productive.

The problem is that the very people whose problems desperately need solving the most - are always excluded by the DNA of orthodox conferences.

-- umair // 1:16 PM //


Monday, February 25, 2008
 

Next Wednesdays


Hey guys, I had a special request for a Next Weds tomorrow (Tuesday) night.

So, if you're around and interested, let's get together at Detroit on Earlham St in Covent Garden from 8pm.

Since I don't have a life, we will do both nights this week.

-- umair // 10:51 AM //


Thursday, February 21, 2008
 

Is Etsy the Next Google?


So let's discuss a topic people seem to be quite interested in.

Is Etsy the next Google?

I think it just might be.

I'll save the reasons for tomorrow - suffice it to say that the amount of value Etsy can potentially unlock is absolutely world-changing. Those of you who've followed bubblegen for a while know it's been my favorite play for a very, very long time.

Just like Goog solved a Very Big Problem, so can Etsy...I'm just not sure the Etsy kru fully sees it yet. But then, neither did Google, from 1997-2002.

For now, fire away and let everyone know what you think.

NB -

Guys, if this post makes you angry, take a deep breath, ask someone for a hug, and chill out. There are way (way) more important things to get emotional about.

Here's Kottke, for example, spectacularly missing the point.

Kottke kind of absurdly suggests that there been only three revolutionary companies since 1960 anyways, so comparing Etsy to Google is meaningless. Actually, there have been hundreds of revolutonaries. Starbucks, LVMH, H&M, MySQL...the list is enormous, and the value of the Dow/Nasdaq/etc vs something like the Ghana Stock Exchange Index confirms it.

Why so much heat/irrationality? Because I think a lot of you, like Kottke, are either new to bubblegen, and/or aren't actually seriously reading the post.

I'm not telling you Etsy is 100% for sure going to achieve Google's revenues 2 years from now. That's a superficial, not a serious, discussion; that's not what we discuss here.

Rather, I'm pointing out that Etsy has the potential to be as revolutionary as Google in terms of DNA, and that new DNA might just let it solve a Very Big Problem. That's the deeper discussion we are gonna have shortly.

It's economic causes - not finanical outcomes - that we want to discuss.

Thanks for all the comments so far, I think a couple of them have come kind of close.

-- umair // 11:58 PM //


 

2008 + The TechCrunch Effect


Mike A has mirrored this post anyways (with a few comments of his own, worth reading), so here it is again, esp for all of you who asked to see it.

Let me add something before it kicks off.

First, take a deep breath and relax. If you're here just to rubberneck, it's lame, and you should leave.

That said, I pulled it for two reasons.

First, because it was turning into a bit of a pissing match (with people I know and like, no less). That's distinctly not the point of Bubblegen - if people don't want to be discussed, it's their prerogative not to be.

Second, because the cost of criticizing TC is taking on the larger TC machine, now and in the future. You get almost instantly tag-teamed by several people at once - guys who can spend all day blogging about you and your post, no less.

It's not just a pain. I think that's fundamentally unfair. It's not a game that's worth playing. What should be debate feels suddenly more like minor-league intimidation.

Maybe that's why it feels like, as several commenters point out, there's an elephant glaring at everyone from the middle of the room; an elephant with a keen ear and a short fuse, whom everyone is afraid to look at, for fear of getting stomped.

Anyways, blah, blah, blah, here's the original post, enjoy (or not).

***

Admit it. You're getting just a wee bit tired of TechCrunch. Erick's posts are usually pretty cool, and TC UK is interesting. But otherwise...between Mike, Duncan, etc, it's a bit like mistakenly walking into a room filled with screaming harpies.

I'm gonna make a prediction. TechCrunch (etc) are peaking. Without investing in the community - instead of just endlessly playing the community against itself - further growth (real growth, not just beta) is going to be more and more costly.

I'm gonna call this set of dynamics the TechCrunch Effect. It's the opposite of building a community. Instead of making a set of people with similar interests better off, you wedge them and divide them.

Yes, you can get attention that way - by tapping the dynamics of competition. No, you can't sustain it - because the returns to competition are dominated by the returns to cooperation in a world where anyone can compete.

2007 was the year of networks. 2008 is going to be the year of communities.

If we're lucky, Etsy is gonna start emerging as the next Google. Microcommunities are going to explode. Etc. Why? Because at the edge, love is more powerful than hate - a lot more powerful.

NB - Mike B has a nice and funny response here, which you should read.

I have a feeling I'm gonna take maaajor heat for this post, so let me leave you with three thoughts.

1) When I say love in the context of communities, I don't mean just giving good reviews. I mean managing the community so everyone's better off, not arguing all the time.

2) If you wanna comment, no flames for either side please. Bubblegen and TC aren't competitors, there's no need for anyone to feel threatened, so let's focus on constructive criticism.

3) Yes, of course, I could just be wrong.

-- umair // 1:58 PM //


 

DNA and The Obama Endgame


Lots of interesting comments on the Obama Endgame post.

Let's talk for a sec about political DNA. A couple of people have pointed out that the prez - technically, at least - can't change the political DNA of Washington. That is, the DNA is hardcoded into the constitution.

I'm not so sure. Bush has radically changed Washington's DNA. True, he's subverted the constitution in many ways.

But if you look a little more closely, much of the DNA also lies outside the constitutionally ordained megastructure. Two parties, caucuses/primaries, funding rules, committee-led decision-making, how elected officials staff their offices, how the prez, ultimately, can softly restructure the rest of government via appointees, etc.

What do you guys think? It's funny - but the most intuitive example of DNA I think we can discuss ain't business, it's politics.

-- umair // 1:37 PM //


 

The Neverending Lameness of the Venturescape, Pt 28881


Ashkan has a long and interesting post about why most ad-supported startups will fail, but venture guys don't get it.

I think there's a simpler way to put it. Most ad-supported startups will fail simply because 1) ads suck, and destroy value, but 2) they're not creating new value by making said ads any better.

In fact, the less they all focus on making ads better, the worse each of these players is, because the mediascape just gets more polluted.

It's a classic example of a negative equilibrium.

How did we get here? Most venture guys, unfortunately, being almost as myopic as analysts, are more interested in revenue (yeah!! high-five!!!) than on creating real, durable, sustainable value by making ads that don't suck.

There's a universe of difference between the two. Think Facebook vs Google.

So: 1) lots of lame startups serving tons of crappy ads, soon to be followed by 2) lots of dead startups no longer polluting the mediascape with tons of crappy ads.

-- umair // 12:09 AM //


 

Macropocalypse, Special Welcome To Edition


oh hai. i'm stagflation. i'm in ur economy eatin ur growth.

-- umair // 12:00 AM //


Wednesday, February 20, 2008
 

The Obama Endgame


So. At last like the ten get-togethers I've been to, the big question has been the same: (when) will Barack Obama be assassinated?

Yes, it's an awful thing to discuss. But the argument's as simple as it is compelling (and admit it, you've discussed it lately too :)

At this point, his momentum is unstoppable. But he's as unstoppable as he is dangerous - to every vested interest in the universe, from lobbyists, to dictators, to corpocracies.

As Daniel Noriega recently said - Obama is leading what's essentially a revolutionary movement.

And that, for my money, makes assassination a distinctly likely event - from a strategic pov, more likely, in fact, than an Obama presidency.

If only there was an Intrade contract...

Now, please don't misread this to mean I want to see Obama get offed. Far from it - I think he's the closest thing we're ever gonna get to JFK meets MLK.

The parallels are striking. Those were the last two guys who wanted to revolutionize the country's DNA - who threatened multiple vested interests at once. And we know how - what a coincidence - both their stories tragically ended.

-- umair // 4:00 PM //


Monday, February 18, 2008
 

The Fourth Horseman of the Macropocalypse


What do Zimbabwe, the UK, and the USA have in common?

As it turns out, quite a bit - at least when it comes to broken DNA.

In Zimbabwe, it looks like this: a cadre of government thugs, eating what little fat is left on the bones of the country's decaying agricultural and industrial asset base.

In the UK and US, it looks like this: bankers cashing in million-dollar cash bonuses at the Ferrari dealership, while their deals go down in flames - and you foot the bill.

See the similarity yet? The underlying economic principle is exactly the same: without mincing words, it's theft; a transfer of wealth from the poorest to the richest.

Look. We can apply all sorts of rocket science to analyze this. And we will, at my HBS blog, in relatively short order.

But the reality is simple. It's not just that the guys who perpetuated the macropocalypse are laughing all the way to the bank. It's that if you don't know who the sucker is yet - that's because it's you. You are the pawn in this game.

Whether it's Bernanke slashing and burning the economy to a devaluation of Third World proportions, or Gordon Brown nationalizing the very real costs of greed and fear, the problem is the same: the DNA of the financial system is in near-total decay.

Economies that are run this way - to transfer value from poor to rich, rather than create value - end up in a single, bad, equilibrium: stagflation/hyperinflation.

Think Japan, or better yet, Zimbabwe.

Why? Think about it. In such an economy, the incentive for investment dies. And that kills any further productivity/efficiency/etc gains. And so the economy begins going into reverse, eating itself from the inside out.

So here - as plain as a sunny June day - is the fourth horseman of the macro crisis: instead of organizing and managing the financial system for value creation, the pliance and complicity of governing bodies in organizing and managing it so wealth is transferred from those who need it most, to those who need it least (and who are willing to abuse it most).

That sounds hyperbolic. Unfortunately, it's not a joke. It's an economic disgrace.

In fact, more than that - it's an economic act of violence: theft.

-- umair // 8:39 PM //


 

Edge Principles: Love > Fear


Found an interesting reponse to one of my points here -

"...

tja, true love is hard to find but definitely out there (apple, threadless, netflix, krispy kreme)

disagree."


Let's rewind and understand the relationship between love and ads: it's strongly negative. When consumers really do love stuff, those brands have to advertise less.

Why? Simple: because love isn't built by carpet-bombing people with costly ads.

On a deeper leve - as Threadless demonstrates - it's not the "brand" consumers love; and when people love stuff, they stop being "consumers".

We need a whole new vocabulary for these new dynamics.

But the point is: don't miss the forest for the trees. Yes, there are a handful of companies people love. But from an economic pov, those are the almost always guys that invest the least in advertising. They earn that love in more strategically meaningful ways.

-- umair // 3:44 PM //


 

The New Economics of Brands


Hi folks. This week at my HBS blog we're discussing the new economics of brands - as an example of how traditional sources of advantage are failing - in text and in video.

I've noted several examples of branding plays gone wrong here on Bubblegen (you know who they are) - but I haven't discussed the economics of brands, why brands are decaying, or what next-gen branding will look and feel like.

So if you're interested in a deep dive on brands, economics, and advantage, check it out. It was a fun post to write.

And, as always, please leave a comment there to let me know how you guys are enjoying the community/discussion/etc - I will try and get a video response going when you do.

-- umair // 2:54 PM //


 

Next Wednesdays


I don't know about you guys, but I'm jonesing for a Next Wednesday.

So let's get together this week. Same place as last time - Detroit Bar, Earlham St, Covent Garden, Wednesday night from 7pm onwards.

There's tons to discuss - if you wanna suggest a specific topic, comment away, email me, etc.

All are welcome, bring a friend, if you're really unlucky, I might shoot a video of you for my HBS blog.

-- umair // 2:45 PM //


Thursday, February 14, 2008
 

En Direct


Hi folks - if you've never had the chance to hear me geek out in person, and you wanna do so, spend a sec to check out the video comment responses we're doing at my HBS blog.

I got a very interesting comment, and uploaded a longish video clip in response, discussing the changing nature of advantage.

It really does help bring the conversation to life.

I'm gonna try and do these regularly, so if you're interested, comment away there (unless it's about my incredibly nerdy sweater :)

-- umair // 7:30 PM //


Tuesday, February 05, 2008
 

Bubblegen 3.0


Hi everyone.

Let me take a few minutes to discuss some fairly significant changes to Bubblegen.

First, I am going to be creating a new kind of research institute: the Havas Media Lab.

Second, as some of you might have noticed, I am a discussion leader/blogger at HarvardBusiness.org, to help frame and introduce many of the ideas in my forthcoming book.

Let's take these one at a time.

Regarding the Media Lab, I've been working with the team involved for quite a while. They rock, and we all have a deeply felt interest in reinventing media, marketing, and brands.

The Lab happened because I don't think any of the standard models - venture funds, corporates, firms, etc - can really make it happen (or else it would be happening).

Hence, the need for a new kind of entity, which is focused on driving new ideas - but also focused on igniting experimentation and discovery.

I've talked to many of you about the Lab already. I'll be discussing the goals of the Lab both here and at the Lab's (currently nonexistent :) blog in depth over the coming weeks.

Next. As a discussion leader at HarvardBusiness.org, I'm gonna discuss big-picture issues about how strategy and advantage are evolving. The team at HBS Digital have assembled a group of some of the world's most serious business thinkers as discussion leaders, and it's a privilege to be added to that list.

I used to post a lot about bigger picture stuff at Bubblegen. But some of you have noticed that I've been holding back discussing exactly that here at Bubblegen for a while - now you know why.

So if you're interested, hit my HBS blog. The first post is a deeper discussion of something we've been talking a lot about here - DNA.

If you're a Bubblegen regular, let me know what you think by leaving a comment there - I could use the feedback, to help me understand how you guys can be members of both communities.

What does this mean for Bubblegen/advisory? I will continue to work with a small number of clients on advisory work, but the Lab's goal isn't strictly to be a consultancy.

What does that mean for Bubblegen/blog? Bubblegen is going to live on in much the same way it does now, discussing stuff in excruciating detail with lots of tedious jargon, just with a bit less frequency :)

I'm excited by all of this - and I hope you are too.

-- umair // 1:30 PM //


Monday, February 04, 2008
 

Edge Principles: Advantage is in the DNA, Yahoo + Microsoft Edition


So I've got a lot of comments and emails basically saying that you guys think that when I argue DNA will prevent Microsoft + Yahoo from creating value, I mean "culture".

That's inaccurate, so let me be (a lot) more precise - and skip to the end of this post if you've heard this part before.

DNA is how we organize production and consumption.

Corpocracies have a specific DNA: vertical integration, elaborate hierarchy, and lots of cronyism.

Open source communities have another: no bosses, always-on negotiation, and open but deeply interdependent production.

So let's try and recast the Yahoo + MS argument.

The point isn't culture. Rather, it's that Yahoo and MS are - and will be jointly even more so - unable to shift from core to edge leverage.

Consider the simple fact that despite a decade of countless billions spent trying, neither one has built a market, network, or community that ever really worked.

Why? Because they're already organized on a dying industrial paradigm. Yahoo is the ultimate siloed organization, where bureaucracy and fragmentation stifle radical innovation - perhaps the ultimate source of it's paralysis.

See the point? DNA is about how we manage - how we organize and manage production and consumption.

Google's Achilles heel is communities - but it's competence in assembling markets and networks is absolutely unparalleled. Again, the cause is DNA: Google manages consumption and production in radically different ways than almost anyone else in the economy, save Craigslist.

Google has a genetic makeup that lets it leverage the edge almost reflexively - but Microsoft and Yahoo have a genetic makeup that already organize production and consumption in a very specific way: according to the dying logic of an industrial massconomy.

Now, how does this affect strategy?

All the things everyone's ascribing to this deal - scale, etc - those are yesterday's sources of advantage.

The power of Google's DNA is that it lets Google tap entirely new sources of advantage.

A simple example. Even if Yahoo + MS combined had a larger market share than Google, who would be more likely to redefine brands? Of course - Google - because experimentation is hardwired into it's nervous system. The value of scale is constrained by DNA.

That's the point: in the edgeconomy, advantage is in the DNA.

Let's reverse that. Conversely, new DNA is yielding radically new sources of advantage, which dominate the network logic of a massconomy - and utterly eviscerate yesterday's sources of advantage, which are slowly dying in the ashes of the massconomy.

-- umair // 10:21 PM //


Friday, February 01, 2008
 

Victim of the Crime


You know, it's not often that we get to witness fatal errors. Strategic errors, sure.

But bona fide fatal - company-killing, firm-vaporizing errors - errors? Almost never - they're the strategic equivalent of meteor strikes.

Lucky us for, the heavens are raining fire today.

I hate to be so blunt, but I'm short of time today, so let me offer a guess: Yahoo + Microsoft isn't just a mistake - it's a double suicide; a fatal error.

Why? Neither company has the DNA to take on Google (let alone the massive number of startups waiting in the wings). Sure, they might collectively have the resources.

But DNA will always constrain YahooSoft from utilizing those resources in ways that create value.

Think Hotmail --> Yahoo Mail writ large. Think delicious --> nowhere. Think Microsoft hardball vs Google softball. Think of the near-total paralysis and groupthink in a YahooSoft boardroom.

The Street is thinking about this nascent industry in terms of "market share". That's shorthand for: "we have no real insight into competitive dynamics".

Competition in this space is - and has been - about edge competencies, redefining brands, and reshaping consumption.

Now look a bit further out. Microsoft is gonna blow it's entire cash pile on this deal.

That's not just a strategic error: it's going to be a fatal error.

Why? Combining bad DNA with bad doesn't yield good. It yields worse.

The challenge facing the media industry - the reason Google blew it's quarter - is to reinvent branding.

Do you think YahooSoft - a combined entity with even less empathy for connected consumption than each alone - really has any hope of doing so?

Not a chance.

I think - for what it's worth - that this is the end of Yahoo as we know it. Fine - the real Yahoo, sadly, suffocated a long time ago.

The real point is: this is the end of Microsoft as we know it. Yes, I know, finally, isn't it nice, etc - more to the point: the endgame will be to leave Google more firmly in the driver's seat than ever before.

-- umair // 6:25 PM //


Saturday, January 26, 2008
 

The Macropocalypse is in the DNA


Finally, the realization is dawning.

It's not a liquidity crisis, or a solvency crisis - but a crisis of DNA (more).

The next stage of the crisis will be harder - because central banks don't have the levers to change the DNA of the financial system, or the economic system.

Their role is simply to target inflation (and/or unemployment). And that's increasingly part of the problem.

-- umair // 1:00 PM //


Friday, January 25, 2008
 

Rethinking the Corporation


A nice article from Businessweek exploring exactly what we've been talking about: the death of value creation.

Highly recommended.

-- umair // 6:28 PM //


 

The Worst Ideas of 2007, Or How Not to Revolutionize Marketing


For some reason, the media industry was gripped by a bizarre delusion in 2007 - that consumers (!!) love (!!) brands [insert boardroom high-fiving here].

Obviously, they don't - as Yahoo has discovered the hard way, Honeyshed/Coke/auto guys are learning, etc, etc.

Like I've pointed out many times - there's a simple existence proof that this proposition must be false: if consumers loved brands, brands wouldn't have to advertise.

The point is: media's central challenge in 2008 remains what was in 2007 - to rethink the essence of branding, and create new modes of communication consumers really do love.

-- umair // 2:55 PM //


 

What Infected DNA Looks Like


"Hey guys, we just lost $7 billion!! lulz!!!!111"

Ummm.

The fact that Socgen getting massively blown up doesn't inspire fear (or even loathing) - but a roasting and laughter should be a stunningly visceral example of the rot in the Street's DNA.

As a very simple example, there's almost zero incentive to manage (money, assets, etc) for long-run value creation, because near risk-free short-run compensation, like cash bonuses, massively outweighs risk-bearing long-run compensation. Etc...

This should make the larger point more intuitive: DNA is how we manage stuff. It's easy for this kru to laugh about blowing $7 billion, because managerially, it really is a joke to them - no one is really punished, their costs and benefits stay largely the same.

-- umair // 2:38 PM //


 

Google, The Macropocalypse, and Rethinking Strategy


We've discussed this particular principle - good beats evil - many times now.

Here's a visceral - and simple - example of the economics behind it, and, hopefully, if you can read between the lines a bit, why evil is driving the macropocalypse.

By doing good - killing domain tasting - Google takes a very real short run hit: but massively amplifies the long-run health and vibrance of the ecosystem.

Instead of resources staying frozen and monopolized, players in the ecosystem are more free to constantly probe for their most productive uses.

And so everyone's productivity is exploded - everyone is better off in the long run: Google, advertisers, publishers, and, of course, consumers.

That's razor-sharp next-gen strategy - a perfect, textbook example.

But let's think a bit bigger.

Imagine how different strategy - and the macro landscape would be - if players like the Gap, Ford, big pharma, and big food also thought this way.

The global economy would be a radically different place.

Bill Gates recently talked about capitalism failing the poor.

I think naive capitalism is increasingly failing us all - by forcing corporations to become corpocracies, and actually minimizing the total amount of value they can create.

Google killing domain tasting is, in it's own small, I hope, a powerful example of a very different kind of thinking about the origins of value.

-- umair // 2:29 PM //


 

Edge Principles: Open Beats Closed


You know, in 2008, we really should not be talking about Digg. At all.

That said...

Scott and Mathew think an open social network isn't viable. I'm not sure why, since Myspace (Mixi, blah, blah, blah) certainly is/are.

Here's an edge principle: open beats closed.

The converse is: you only have to close when your DNA isn't quite there yet; when the way you manage things still kind of sucks.

More to the point: closure is a sign of strategic failure in the edgeconomy.

Now, that doesn't mean everyone can do everything everywhere. Consider Wikipedia - it's remained open, anyone can edit stuff - though it manages edits very differently than ever before.

But Digg is different. The reason I don't think we should be talking about Digg is that it's frozen, paralyzed, as caught in strategy decay as Time Warner or Yahoo.

Kevin, Jay, and the kru haven't evolved the Digg concept at all (but for tiny, incremental tweaks to the same algorithm) in like 3 years.

More to the point, I'm not sure how serious they are about co-creating value with their community - Jay's comments are oddly reminiscent of the kind of waffling you hear from big media boardrooms ("it wasn't a revolt" --> "consumers love brands!!").

That's fine, they have their own reasons. But perhaps we would be better be discussing (really) revolutionary stuff.

-- umair // 2:19 PM //


 

The Ponzi Faceconomy, Pt 38881


Someone tell [email protected] that there is actually no "Facebook Economy" until the platform coordinator, aka Facebook, actually learns to create a proper, working ecosystem, where durable value is created.

Mini-games, zombies, and the bunker-buster known as Beacon do not an economy make - at least not a vibrant, sustainable, growing one.

-- umair // 2:16 PM //


 

Macbook Air: iPod or Newton?


Remember what the convential wisdom was regarding the iPod when it launched?

That it was pretty, but was easily outcompeted by other mp3 players offering better features - more memory, bigger screens, etc, etc - and so it was doomed to fail.

The iPod got slammed on it's release - because almost everyone failed to understand that Jobs wasn't playing an orthodox game of feature-based (aka price) competition.

Apple wasn't trying to incrementally improve a failing value proposition - but to blow it up entirely, and open up new strategic trajectories for an almost entirely moribund consumer electronics industry.

I think it would be wise to place the anti-hype surrounding the Macbook Air firmly in that context.

-- umair // 2:11 PM //


 

NYC


Folks, I will be in NYC late next week. If you wanna get together and chat, drop me a line...

-- umair // 12:19 PM //


Thursday, January 24, 2008
 

Rethinking the Economic Institutions of Hypercapitalism


So...the last thing I ever expected was for me and Bill Gates to agree on the next big (big) thing - I've always seen him as more Vader than Yoda.

But that's the score; billg of all people, is essentially arguing the title of this post: that the naive capitalism system cannot allocate resources or capital efficiently in many more circumstances than we would like to admit.

This is exactly (the flipside of) what we were discussing a few weeks ago.

It's the conclusion I reached earlier this year, and why I chose thinking more seriously about hypercapitalism as the next big thing at bubblegen: capitalism fails too often, too flagrantly, and in exactly the wrong places, for me to be entirely comfortable with it as the edifice of a global economy.

So Bill has the problem exactly right - but not, I think, the solution.

Let's rewind. I've been talking a lot on bubblegen lately about the ability for 2.0 to massively solve exactly the problems Billg talks about - poverty, hunger, disease, etc.

Why?

Because the economic institutions of capitalism - firms and (financial) markets - alone can't solve these problems.

No matter how much money we throw into them, at them, through them - they are solutions for very different problems; economic problems dominated by equilibrium solutions and a limited number of homogeneous players.

The new economic institutions of hypercapitalism are different: (new kinds of) markets, networks, communities - and the radically different firms that power them.

The challenge, I think, for people who wanna really build the next economy, is making markets, networks, and communities become the glue holding the hypercapitalist economy together.

It's won't be easy. But that's always been the great opportunity for 2.0 - not more (retarded) Facebook clones, ad nets, etc.

I think it would be interesting to chat with Bill about this (which is the last thing I ever thought I'd say) - if someone can drop some this post his way, that would (maybe) be cool.

-- umair // 10:31 PM //


Wednesday, January 23, 2008
 

The Macropocalypse and the Perversity of Global Monetary Policy


A significant portion of the rotten DNA in the financial system is inside central banks.

There are many reasons, but to get to them, we've gotta connect the dots first.
What's really going on in terms of monetary policy?

The rot in the financial value chain is deepest in the States, where the seeds of the implosion were sown. And that's where the Fed slashed and burned rates like never before.

Across the pond, in Europe and the UK, where the rot isn't nearly as deep, and which received - rather than ignited - the virus, the ECB and BoE and refuse to cut rates.

That's a seriously perverse outcome.

If anything, monetary policy should be working exactly in reverse: tiny or no cuts in the States, to let the market punish transparency into the value chain and defeat the structural incentives for moral hazard; and significant cuts in Europe and the UK, to stabilize liquidity until said transparency does emerge.

This doesn't bode well for the immediate future. Central bankers have been, it seems, divided and conquered by the virus they should be working together to eradicate.

-- umair // 2:15 PM //


Tuesday, January 22, 2008
 

Next Wednesdays Tomorrow


Tomorrow, Jan 23, Detroit Bar , Earlham St, Covent Garden, from 7pm.

We will be discussing the macropocalypse, the Bernanke Put, why the 2.0 kru blew it in 2007, etc.

All are invited, bring a friend.

-- umair // 8:03 PM //


 

Why Marketing Sucks (For Dummies)


You know, strategy can often be deceptively simple.

Example. Ads (still) suck.

Explode the value proposition, make ads that don't suck, etc.

Please, someone - do it already.

-- umair // 7:34 PM //


 

The Davos Paradox and the Macropocalypse


You know, the irony of a "World Economic Forum" happening while the global economy melts down is a bit too rich for my palate.

And the fact that the topic is "collaboration" is like the icing on the cake.

Lulz.

But - unfortunately - it's not just a joke. Isn't there something (very) wrong with this picture?

Yup. It's just another example of the rot in the financial system's DNA.

How?

In a curious paradox, the very economic logic of Davos is itself toxic: that the people who we all benefit from discussing the most economy are CEOs and other assorted megacapitalists.

But the real problem isn't horizontal communication between CEOs - it's lateral communication; that shareholders aren't able to, can't, or won't influence the behaviour of said CEOs and the resources they marshal.

See the point?

What has, ultimately, brought the global economy to it's knees is that the firm itself, and the way it's managed, is in deep - perhaps terminal - decay. No amount of chit-chat between CEOs, superstar DJs, and even more CEOs is gonna fix that; it will just accelerate the spread of the virus.

The protestors, at least in this case, aren't far off the mark.

From a very real economic point of view, Davos is a facade, a prop helping the masquerade of value creation that is the massconomy wind down to it's inevitable implosion.

We don't need self-indulgences like Davos: what we need are better mechanisms to value, price, and allocate resources, and better techniques to manage and encourage economic actors to buy into them.

So forget Davos. Don't help prop up a broken machine built on toxic logic.

If you wanna see into the future, read this instead.

Or, better yet, start shorting evil - and going long good.

-- umair // 7:17 PM //


 

A User's Guide to the Macropocalypse


A deluge of email asking: what should I do/where should I invest?

It's an interesting question, and I have a fairly unorthodox answer.

Cash is a bad idea - the Bernanke Put means your dollars are going to be devalued, fast. Debt? lulz. Complex instruments, like derivatives? You must be kidding. Commodites, gold, oil? Maybe - if you have an appetite for near-total volatility and pain.

That leaves us with equity.

Here's a radical proposal.

I think there's a very simple way to profit deeply from the crisis.

Help fix the broken machine, and invest in companies that you believe create real, durable, sustainable value. Be a real shareholder (for a change). Don't just chase near-term profits, especially in cheesy, evil companies. Don't treat investing in a firm like a trip to the mall to buy disposable, generic, toxic "product".

Look, I'm not saying anything revolutionary. It's exactly what Warren Buffett has been saying like clockwork every year for half a decade.

People trivialize it by calling it "value" investing. Don't make the same mistake and fail to see the point. There's no other kind of investing, in the long run. The point of being a shareholder is to own the right to share in value creation.

In this crisis, there's a deeper logic at work to putting your money where your mouth is. Those players that survive will be the ones with better DNA.

So getting through the recession isn't about money - it's about being part of a larger economic system where the DNA isn't rotten. Of course, you have to play your part.

If you can't stomach a quarter of bad earnings, or all you're interested in is tomorrow's share price - you're the problem. I think the people that profit from this crisis will be part of the solution.

We'll talk about this in much greater depth over the coming weeks and months.

For now, leave your thoughts in the comments and let's discuss.

-- umair // 4:12 PM //


 

The Bernanke Put and the Macropocalypse


Lol, look, it's the (Godzilla-sized) Bernanke Put.

If you're not sure what just happened, let me spell it out.

By preventing the market from finding a bottom, the Fed just transferred risk from hedge funds, banks, and other people holding illiquid assets, to you - people holding liquid assets.

Bernanke is essentially inflating the US economy out of a debt crisis.

It will rally the markets in the near-term - but does nothing to change the rotten DNA in the medium-long run.

In fact, the problem with deflating your way out of a debt crisis isn't just that it destroys your credibility - it's that it destroys the market discipline, the incentive for value creation, etc.

Let me put it as simply as possible. Unless you're in on the fix, you just got taken to the cleaners.

Bush is gonna cut you a check for a few hundred bucks. The Street goes back to sipping Cris for a few weeks.

The dollar falls, the losses are still infecting the books, and Main Street spends even more money it doesn't have - at a steeper cost than ever before.

See the problem? The mortgaging of the American economy to dubious creditors continues; the rot infecting the financial body spreads - just at a more furious pace than before.

Despite superficial commentary like this, the Bernanke put won't have much of an effect. It's like treating cancer with Jack Daniels.

-- umair // 2:18 PM //


 

Yahoo, Please Don't Put Up a Fight


Viz.

Forget the nice market analysis - unfortunately, it's irrelevant. Yahoo's problem is DNA. And bad DNA means Yahoo can't - evar - make the right decisions; and that it must continue to be a deadweight loss to the mediaconomy.

Yahoo - You've held back thousands of very talented people for the last 5 years, and prevented them from making the fullest use of their talents and insights.

We would all be better off if these guys were freed from your shackles; keeping them inside your doors - working on dead-end projects and hamstrung by political infighting reminiscent of an industrial era monolith like GM - is by far the least productive use of their time.

It is, ultimately, because your management is lame.

You guys all let Terry Semel make the third fundamental error of strategy - to mistake deal-making for strategy. In the process, you sold out a deeper set of principles; you forgot that the job of a revolutionary is never to sell out, and the point of a strategy is fundamentally to create new value.

The fundamental assumptions behind your thinking are deeply in error, and so your strategy is in massive decay. So please, don't put up a fight - let these guys go build the cool startups and pioneer the radical innovation you've stifled and suffocated for the last half-decade.

-- umair // 1:52 PM //


 

Black Tuesday


You know, when I posted this morning, I didn't expect global markets to fall by 4-7%.

So was today the crash - or are the real fireworks still to come? Was today Black Monday, or will tomorrow be Black Tuesday, etc?

I think the worst is yet to come. On the simplest level, historic crashes are more on the order of 10-20%.

But let's think a bit harder about it, with a bit more perspective.

You know, I'm not a big markets guy. I almost never follow the vagaries of the various financial markets - because I think they're more noise than signal.

In fact, not so long ago, for my MBA internship, I was a trader (of CDO's and credit derivatives, irony of ironies). And I found it to be the most mind-numbing job evar - just fractal patterns of white noise and feedback flowing from trading screen to trading screen, zeroed out of any economic meaning.

But what's happening in the markets these days is different. It's very, very important.

Every day brings fresh signal - not noise. And the signal is a bad signal.

The not-so-secret secret on the Street is that what's going down in the markets is qualitatively different than before. Very different.

Last time the markets imploded, it was because a single (big) hedge fund blew up (LTCM, you know the story). The time before that, it was because a trading strategy (portfolio insurance) blew up.

But this time, it's because the viability of the very institutions at the heart of the financial system is in question.

See the difference?

It's a huge one. Purely quantitatively, the difference is orders of magnitude. This crisis is already on the order of hundreds of billions; the last crises were on the order of tens. But qualitatively - last time, the value chain itself wasn't coming apart: this time, it most certainly is.

So tomorrow is gonna be a critical day.

Is it going to be an extinction event? I'm not sure.

But the point is: every day that players forego new DNA, the probability of an extinction event continues to grow (something like exponentially).

So even if Black Tuesday doesn't happen tomorrow, the pressure for a black day will continue to mount every day - slowly but surely poisoning the global economy.

The reckoning - the readjustment of expectations downwards as the extent of the losses become less hazy, and growth implodes - isn't, after all, something that can be put off forever.

-- umair // 1:28 AM //


Monday, January 21, 2008
 

The Second Horseman of the Macropocalypse


Lots of talk about whether we're in a recession - all of it irrelevant.

Are we in a recession? Economists look at lagging indicators to gauge recessions.

In fact, when you look at leading indicators, we're way past the point of a simple, temporary recession.

The climate of fear across global financial markets is fast approaching hysteria.

The virus that was born on Wall St has now reached across the globe to the Bank of China, which has begun writing off subprime debt.

Merrill Lynch, in case you aren't keeping up, is actively - and furiously - being unbundled, in an attempt to keep it viable.

Here's a fun bit of analysis. My numbers indicate that the megabanks can endure about another 7-10 writeoffs of similar magnitude before the global financial system actually...ummm...breaks.

That might sound like a nice cushion.

But it's not. Because the fundamental problem still remains: no one has any idea of the actual magnitude of the losses.

Why not? Because the DNA of the Street is deeply, gangrenously rotten.

Today's Wall St and City of London exist to profit by "ripping your head off" - by doing deals where everyone else is worse off. That is, the hidden costs of capital have exploded.

The point is simple: an economy where the costs and risk of capital are increasingly costly in the long run cannot go on functioning.

Such an economy is a shell game; a masquerade - because the supply of value creation implodes in line with the cost of capital.

Just ask the small towns who got ripped off. Fooled me twice, etc. More to the point, take a look at Robert Mugabe - because Zimbabwe is the endgame of an economy where capital is prohibitively costly and securities & assets are dominated by total uncertainty.

So the cushion banks have can only hold the financial system together for so long - if the underlying problem of DNA isn't addressed, the centre cannot hold forever. The gears will grind to a creaking halt.

Despite sheikhs and "sovereign wealth funds" here and there pumping liquidity into the system - notwithstanding the fact that dumb money is perhaps a greater challenge a simple lack of liquidity - the deeper problem remains.

There's not enough dumb money in the world to keep this broken machine running indefinitely.

To mix metaphors - at the very least, we have to be able to diagnose the extent of the infection to be able to treat the disease. Until we can assess the damage done, arguments over whether we're in a recession are like fiddling while Rome burns - because the crisis will always and everywhere keep deepening and darkening.

NB - Got some heat for referring to SWFs as dumb money. Guys, that's not me being a jerk - unfortunately, it's reality.

SWF's don't deliver returns in line with risk. Even the stars, like Temasek, have consistently underperformed market indices, etc, etc. That shouldn't be a surprise - they don't face nearly the same discipline as other funds do etc, etc.

And that they're buying stakes in megabanks tells us just how deep the rot in the financial system really is; from an economic and strategic pov, the market is telling us that even these deeply inefficient institutions are more efficient allocators of capital than megabanks/institutional shareholders are.

-- umair // 3:18 PM //


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