Amazon Wins in a Video Shoot Out

This weekend I was out at a friend's cabin and we decided that we wanted to watch Spy Game.  (A great film even if you are not into the CIA genre, and if you are, no doubt you have already seen it.)  The cabin has DSL, which I tested out at 9.5 mbps, a big screen TV with Apple TV installed.  We had 4 iPads, and as many laptops and smart phones -- safe to say that if a movie was available, we should have been able to watch it.

Here is what we experienced:

Attempt 1 (Failed):  Rent the movie on iTunes and watch on Apple TV.  Turns out we could not remember the password of the account at Apple and we did not want to mess up the install by changing the user.

Attempt 2 (Failed):  Rent the movie on iTunes on one of our iPads and then put it up on the TV using the Apple TV.  We had been putting up you tube videos all afternoon from iPads -- so it should have been a piece of cake.  Turns out that we would have to download the 4.3 GB file entirely before the movie could be watched.  Every so often the DSL would hiccup and the download would start over.  By this time everyone gave up and went to bed, but I kept trying to download it overnight.  The closest I got was 2.5 GB.

Attempt 3 (Worked):  The next day we started in on the project again.  Maybe we could rent the movie on Amazon Instant Video on the web.  Then launch the AIV app on an iPad and connect that iPad to the Apple TV.  Hey, presto -- the move streamed.  It only stopped once during the 2 hour movie when the DSL burped, but started right back up again.

After all of that fun, we were cleaning up the cabin and someone looked at the DVD library and what do you know.... Spy Game had been sitting there in its DVD box all the while!

Setting aside for a moment the fact that we could have watched the movie without a computer or an internet connection, Amazon won the day this time because:

1. They had the movie in their library (but so did Apple)
2. They were cheaper at $2.99 (but that was not a big part of our criteria -- in fact we also paid Apple $4.99 for our failed attempt)
3. But Mostly Amazon won because they had more pathways to success.  In this case we rode over Apple TV, at home we have a TV with an Amazon app built in and that works well, and in other circumstances we have used Chromecast to put a browser window with the Amazon stream on the TV.

More and more we look first to Amazon for video.

Most Customers Want There to Be a Better Way

Customer satisfaction should only be measured on a binary scale:  satisfied or not satisfied.  If I was king for the day I would say that when asked if satisfied, the customer could only answer:

1)      Unbelievably Great, or

2)      There Must Be a Better Way

Even without my coronation, I propose that this is the way customers think today but are reluctant to be so emphatic about it.  We all purchase products and consume services that do less than blow our minds with quality, service, or value; let alone all three.

In some cases the government has reduced our choices (think internet access), or monopoly power has reduced competition (think computer operating systems), or strangely, we have voluntarily locked ourselves in a cage with reduced options (think frequent flier miles).

The unsatisfied / must be a better way category takes up an overwhelmingly large portion of the consumer landscape because we have made price a disproportionately large factor in product comparisons.   In addition, some very expensive but unsatisfying products (think of an expensive luxury car with poor reliability) have eroded the trust between the manufacturers and their customers. 

Just when you think we are doomed to fill our lives with cheap and crappy products delivered across the Pacific by the shipload, some unbelievably great products arrive to save the day.  My favorites are the Tesla and the Nest.  Elon Musk and Tony Fadell have delivered to us products that are indeed unbelievably great.  And customers are willing to pay well above the competitors prices for them – therefore restoring my faith in us, the consumer.

These two guys and their products are great disruptors.  They refused to believe that cars or home automation were places without innovation or an appreciation for good engineering and design.  We all should look to their example the next time we are feeling that there must be a better way.

Google is a company that believes in a better way.  Today they announced 34 new cities for their Google Fiber project. Unfortunately for me, Seattle is not on the list. I have written before that I think Google Fiber is one of the most innovative marketing ideas ever.  Imagine taking a broken industry, introducing a infinitely better solution, charging a premium for it, and being viewed as the white knight for doing so.  That is so awesome!

Three Big Data Articles today

There are several good articles in the NY Times Sunday Business section today that serve to illustrate the coming world of Big Data.  

30% of customers opt in to driver monitoring.  This is Facebook meets car insurance.  I am amazed that this many people willingly subject themselves to this kind of monitoring.  Here is my post about how insurance companies have detached themselves from the basic concept of insurance.  In short, insurance companies are increasingly able to exit the insurance business.  They have always wanted to collect premiums, and not pay claims --- now they can do it.

Building snow skis from skier's DNA.  For $1,750 you can get custom skis made to your skiing DNA (not your biological DNA thank goodness).  It would be very interesting to know how unique the 1,000 pairs of skis this guy made last year are.  I would not be surprised if they all boil down to a dozen or less basic designs.  This kind of short run (run of 1 in this case) manufacturing brings to light IP that is actually protectable - the design process and the distribution of actual designs.  Very interesting.

Dr. Langer's Lab at MIT succeeds at tech transfer.  This one is a bit more of a stretch, but any new medical product involves a mountain of testing data and data proficiency and the cross over from one product to the next is indeed changing very fast due to better data management techniques.

Happy reading.

How Airlines Use Big Data

I cannot remember the last time I was on a plane with a noticeable amount of empty seats.  I also have not seen overbooked planes and crews working to buy back seats.  I also have been impressed with the on time performance of planes I have been flying on.  If you are interested in this kind of thing, there is a great web site tracking this (in the US anyway) and it turns out the number support my experience.  Load factor up, on time performance up, and guess what else - prices are up too.

There was a good article in the NY Times today about how Delta is doing this -- with better data management  There is so much hype about big data but this is a good reminder that through better data management practices -- everyone can win.  Unless you were counting on a few empty seats around you on your next flight.

Nest Delivers Perfection

What a difference a year makes.  Last year I tried to do a little home automation.  First I bought a whole bunch of Zwave stuff including a Mi Casa Verde Vera 2, a Trane remote energy management thermostat, and a pile of light switches.  I spent a couple of weekends trying to get the stuff to work - it actually did for about 10 minutes, and then the controller got corrupted somehow, the new firmware had to be installed from a Win XP machine.... and well, yah.  

So I thought, maybe the high priced route?  So I signed up with Schlage for their Zwave controller and paid service (Mi Casa Verde is free after you buy the controller) and another few weekends of screwing around and the project was abandoned.  The ironic thing is that my old thermostat was programmable, and the Trane needed the controller to be programmable, so for most of 2012 my functionality was worse than 2011 and before.

Friday I put in the Nest thermostat.  Done in 10 mins.  I can control it from my iPad, my Android phone, or any PC.  Done.  Awesome.  

Now it is learning to program itself from our behavior.  Awesome.

I cannot wait to see what Tony Fadell and his team introduce next.  No matter what it is --- I will buy it.  It is beautiful, it works, and it is an absolute pleasure to interact with the company.

About that interaction.  I have never called them, or emailed them, or tweeted to them, barely had to read the instructions.... so what is this "interact with the company"?

The thought and care that the Nest team put into their product speaks volumes.  It is just as magical to see it on my wall as it was to hold 1,000 songs in my pocket with the first iPod.

I am sure many companies strive for this kind of perfection... but almost no one can do it.

Way to go Tony and the Nest team.

Here is a picture of the screwdriver that comes with the thermostat.  Need I say more?

Uncorking Wireless

Not long ago most WiFi routers were open.  People did not bother to secure them because they did not believe they had anything to worry about.  Then came FireSheep, an extension to the FireFox browser, that showed everyone how they were exposed on public and open WiFi connections.

Now most WiFi routers are secure and I bet people like AT&T and Comcast and Verizon think that is a pretty good thing.  After all, they are selling bandwidth in fixed bundles and no one is maximizing the amount they use.  

Enter the OpenWireless movement.  This group has set about to establish new standards through which the vulnerabilities exposed by FireSheep can be addressed and promoting the idea that everyone should share their internet connection.  Quite a few organizations are supporting the initiative including the Electronic Frontier Foundation.  Others including Open Garden are introducing new technologies that make it easier to share bandwidth between devices or people.

This is important because it is yet another way that the Internet can route around obsticles.  The Internet is naturally suited to find the best (easiest / cheapest) way round a blockage and we all need to do what we can to support that kind of thinking.  If the Information Superhighway becomes a toll road, we all lose.

Interesting Trends

We have arrived at that season where the list of predictions for 2013 will start to pile up.  I find them interesting reading, but I have not felt that I have much to add to the pile, so mostly I just read instead of making a list of my own.  

This year however, I will be taking note of a handful of trends that seem to capture my interest.  I see tend to read articles about these things and I just might have some thoughts congealing into a theory that brings them together.  

For now though, just the trends:

1. Education:  One of our greatest exports to the rest of the world is educated people from our university system.  Why do we get that right and K-12 is seeming to fall farther and farther behind?
2. Big Data:  Technically big data is just a lot of data.  Specifically, it is the ability for systems to capture and save everything.  Before big data we used to keep track of the closing price of a stock, then we stored the closing price and the high and low price for the day, big data is storing every single trade, who made the trades, their sequence…
3. Internet of Things:  There are between one and two billion people connected to the Internet.  Devices and sensors are being added to the network by the billions and probably already outnumber the people.  Soon the number of connected machines will dwarf people and the Internet will change significantly.
4. Vendor Relationship Management:  The relationship between the makers of things and their customers has been mostly one way and managed by the manufacturer, with CRM systems.  This relationship dynamic has been evolving through 1:1 marketing to an inversion of CRM where the customer is in charge and the vendor is managed.  The Berkman Center at Harvard is defining a new industry called Vendor Relationship Management (VRM).
5. Digital Divide:  The people at the top of the economic ladder will advance ahead of the rest in earning capacity, lifespan, leisure time, and as a result will desire many new services. Those not at the top will have to serve the others or live off of charity or government assistance.  The gulf between the haves and the have nots is getting bigger in our country and around the world.  Right now the unemployment rate for white college graduates in the US is 4%.  Other social classes or ethnicities are much worse -- some over 25%.  It is hard to think about things getting even worse.

Of course the current year always feels like the one that is moving faster than ever before and 2013 will certainly feel the speediest ever.  In this context, and considering this list, it will be an interesting exercise to do the Gretsky thing and skate to where the puck is going to be.  It will be even more interesting to take a shot -- because the other famous Gretsky quote is: "You miss 100% of the shots you don't take."

Getting to the Future

Last year the Microsoft Office team produced a video showing their vision for the future.  It is pretty cool.

Technology companies produce mountains of these aspirational works -- probably mostly to inspire their own people to get motivated and build the stuff.  I still remember this video Apple showed in the 90s.

Dr. Francis Colins said:  

The First Law of Technology says we invariably overestimate the short-term impact of a truly transformational discovery, while underestimating its longer-term effects. 

At the time he was talking about he the human genome sequencing project, but it applies to all technological advances.  We always want the future to get here sooner and we often are dejected, or at least frustrated, by the time it actually arrives.  But arrive it finally does and we only have to look at the amazing things around us to confirm Dr. Collins' first law.

The buzz about the Internet of Things is roaring and we are not so much talking about how refrigerators are going to be on the internet, but an avalanche of billions and billions of sensors reporting everything from the proximity of cars to each other to advances in industrial automation.

China is doing its top down thing in an effort to lead in the industry.  They just concluded their third Internet of Things Conference this last weekend.  The EU has gotten underway with an initiative to establish standards and information sharing with their own IOT web site.

Here in the US it does not appear that there is a governmental initiative, but plenty of companies are working on building the tools we will need to make the most of the concept.  IBM was probably first with its Smarter Planet initiative, now in its 4th year.  Microsoft has StreamInsight, Oracle has its initiative, and there are many others.

It took the introduction of the iPhone in 2007 before people could visualize a world with billions of little computers in people's pockets.  There had been smart phones before, there had been PDAs, but for some reason the iPhone showed us the way.

What is going to be the thing or event that breaks through and enables everyone to visualize the Internet of Things revolution?

What is going to get us to that future?

The Microsoft Effect

The Hawthorne Effect famously demonstrated the changes to worker productivity resulting from changes in work environment.  Like many studies the key learning turned out to be somewhat different than anticipated.  Initially intended to figure out if lighting levels or other environmental factors impacted productivity the result turned out to be that workers did better when working together to improve the conditions.  The improvements were not dependent on the changes but on the process of working together to make the changes.

I have to wonder if the same thing is happening in the Microsoft/Google/Apple race for the hearts and minds of the workers.  Each is courting the users with new and improved ways to be productive.   Microsoft has of course dominated the worker productivity area with the Office suite and the addition over the years of Outlook, Access, Visio, and OneNote. Google helps workers find stuff and has innovated around the edges with priority inbox in gmail and better spam filtering and Google docs and drive. Apple has turned the world mobile, brought about the app revolution, and companies now shower iPhones and iPads on their employees like they used to do with sales trips to Hawaii.

I am 24 hours into using my new Windows RT Surface and all I can think about is how much work I could do on the thing.  It has been 90 years since Elton Mayo did his study in Hawthore, IL, maybe it is time for a new study.  We could call the key learnings the Microsoft Effect.

Licking the Cookie

Fortune Magazine and an unfortunate number of other publications have reported on phenomenon called "Licking the Cookie" at Microsoft.  You know, practice of claiming ownership of a project and therefore preventing anyone else from actually working on it.  Just like when you were a kid and your younger sister licked the last cookie on the plate to keep you from eating it.

The image is hard to get out of my head and now I see the same phenomenon everywhere.  What is it that compels people to get in the way of a problem, just so that one day, if they ever get around to it, they could take a swing at solving it?  Owning unsolved perpetual problems does not seem like the most logical way to advance or otherwise gain job security.

This dynamic does enter the logical universe when the cookie licker also owns whatever would be replaced when the problem is solved.  The guy in charge of a multi-year CRM implementation would most certainly throw sand in the gears of any conversation with Salesforce.com.  Better yet, he could lick the Salesforce.com cookie and make sure its evaluation never ever sees the light of day.

Entrenched interests are doing this everywhere.  Most visible to me is the movie industry trying to prevent a free and open internet and drafting behind them are the television and cable people.  Every once in a while a bright light shines out from one of the big auto makers, but for the most part they are sitting heavily on alternative fuel vehicles.

We are very lucky here in the US because we have a vibrant start up ecosystem that will gladly run around the ends of the big fat cookie lickers.  Not so much in other economies.  So thank you Google for turning the newspaper industry up side down and go Tesla!

Amazon Could Crush Apple in Maps, and Maybe Google Too

The biz is all cranked up over the Apple vs Google Maps thing that came from the latest release of Apple's mobile operating system, IOS 6.  See this article in the NY Times.

In the background however, Amazon has been building its own maps capability.  In July of this year Amazon bought mapping company UpNext and I think Amazon could come from behind to leapfrog Apple and maybe even catch up to Google.

Impossible?  After all, the reason that Apple has rushed its mapping solution to market before it is ready is because Apple needs user data to improve the service.  

Amazon just happens to have a close relationship, a codependent relationship some would say, with delivery companyies like UPS and FedEx.  UPS has 250,000 drivers!  It would not surprise me if there are 500,000 drivers worldwide driving all day, every day, delivering stuff -- much of which is from Amazon.  This year Google announced it has driven 5 million miles collecting mapping data.    If Amazon got its 500,000 drivers to collect map data -- that would be only 10 miles for each driver.  It would take more time to install the collection equipment than it would to surpass all of Google's collections efforts so far.  Call it a week to install the stuff and by the end of the first day, Amazon would have 10x the data that Google has collected.  

Not only that, but professional drivers in every market in the whole world could return much higher quality data than users could.

Could be cool.

Big Data in Big Companies

We work with big technology companies.  If there is anyone that is really doing Big Data, I would think it would be big technology companies.  After all, they believe in technology, have plenty of computing horsepower, and have people that have the necessary skills to do it.  

The reality is quite the opposite however.  Most of the time we are working to overcome very simple problems like duplicates or obviously incorrect entries.  The real data industry came up with ways to deal with these problems decades ago.  Nevertheless, our clients have such low confidence in their data that they often retain us to start over.

Here are a few of the things we see preventing big companies from truly using Big Data:

1. Legal Departments:  The legal department does not play to win, they play to not lose.  They would much rather prevent the collection of data than otherwise.  After all, a company that has not collected any data does not have to worry about losing data in a breach and then getting sued. 
2. Poor Planning:  Good data handling takes time and effort.  Data initiatives invariably take longer than a quarter to implement, and longer than that to produce returns.  Almost all companies are looking to hit the number this quarter.  
3. Internal Competition:  Competition between departments can cause them to hoard data (at best) or go underground with their data (at worst), creating silos of data that is riddled with duplicates and innacuracies.
4. Turnover:  The people in charge of these data initiatives have their eyes on bigger and more important (more visible) jobs -- so they change often.  The person taking over the job is just as uninterested in long term data health, so the problems go unaddressed.

As with many promising technologies, Big Data's biggest challenge is not in the technology but in the way people work together inside companies.  There are enormous gains to be made by the companies that realize what can be done with these new tools and organize themselves in such a way to take advantage of it.

My Version of Big Data

There is an article in the NY Times today about big data by Steve Lohr.  It has all of the parts of a newspaper article including a headline, quotes from experts, references to other articles... butI have read it twice and I can't find any actual description of what big data is.  And the headline says it is "How Big Data Became So Big".

Yes, everyone is into Big Data these days and it is getting bigger every day -- but what is it?

Wikipedia says:  "a collection of data sets so large and complex that it becomes awkward to work with using on-hand database management tools. Difficulties include capture, storage,[4] search, sharing, analysis,[5] and visualization."

No so very helpful.  Aren't definitions not supposed to reference themselves? Yes indeed, big data is, well big data.

Network World quotes AWS:  "Any amount of data that's too big to be handled by one computer."

...Brother!

Here is my definition: Big Data is the complete set of all information associated with a topic or subject.

Here is why I think this is interesting:  the data world is a completely different place when you have all of the information.  When I say ALL I mean every single thing you have ever purchased at a grocery store, every single trade on the stock market, every single temperature reading at a weather station... you know:  ALL.

Until very recently, it has not been possible to put all of the data into one database and analyze it, so we have always sampled data.  Sampled is like polling.  A small amount of data is captured and then broad generalizations are made.  In some cases the broad generalizations turn out to be somewhat accurate.  People who buy butter also buy bread.  

People buying butter is completely different than when you are going to next buy butter.  And that is why big data is a big deal.

We know that 100,000 cars per day drive over the HWY 520 bridge, but that does not say when you are going to drive over it next.

The thing that I find so amazing about the article in today's paper is that the reference to artificial intelligence really waters down the whole movement.  It sounds like these awesome computer scientists have figure out how to take data sets that used to be too big to analyze and have figured out how to generalize things about them.  Why would you ever want to do that?  The benefit in building a space ship is in the going to space, not in building a better space ride at the park!  We already generalize -- by polling.

Here are a few cool things I think could happen with big data:

1. My personal dataset:  An ever growing database of everything I do, that I can analyze however I want.  All of my friends, activities, purchases, pictures, work output, healthcare, even my emotions... all in a format that I can use to figure things out.  I could figure out what activities lead me to do healthy things.  Sounds goofy I know, but my happiness could be mapped against the things I did or the stuff I bought.  Who knows what I could learn.
2. My next hire:  What if LinkedIn could give me a list of the top 10 people I should hire.  Not people that matched job descriptions I posted, but analyze all of my employees, my competition, and all of the millions of people in LinkedIn -- and help me target the people that will change my business the most.
3. My next vacation:  Take all of my travel history, every book I have read, my business travel schedule, my kids interests (their books and experiences), and put that all together and give me a top ten list of places to go and maybe even which of my friends to invite.

Here are a few not so cool things that could happen with big data:

1. My insurance gets cancelled right before I get diagnosed with something terrible.
2. I get audited every year by a fully automated IRS.
3. Telemarketers figure out what to say to keep me on the phone longer.

All up, I am a believer in big data -- no matter how everyone else defines it --  and I think it is going to be a great next ten years.  

Quality Propels Itself on KickStarter

It seems that everyone has an opinion on crowdsourcing.  Some say it is going to liberate the artists, others say that scammers will ruin it.  

My observation is that the crowd has the ability to recognize quality and that good projects get funded.

Here are two examples:

Chris Jordan's Midway Project

Chris is a very talented and successful photographer who has launched an incredible project featuring the albatrosses on Midway in the north pacific ocean.  You can learn more about Chris here. You can see the a video treatment of the idea here. And you can contribute on KickStarter here.  In two days he is already at 238 backers and nearly $15,000 of his $100,000 goal.  

Neal Stepheneson's Clang

Neal Stephenson is one of my favorite authors.  Cryptonomicon is one of my favorite books of all time and I liked Reamde quite a bit too.  He wants to revolutionize swordplay in video games and has launched an effort called Clang.  Check it out here.  In two days he has over 3,000 contributors and is about to push past $200,000 on the way to his $500,000 goal.  

It is hard to watch either of these pitches and resist getting involved.  And getting involved has never been easier.  

Chris Anderson's List

Chris Anderson also spoke at the HP Discover event last week where he presented an inspiring list of the things the young people now entering the workforce want / expect.  He was careful to point out that with considering the current reality that these things can be delivered through employee owned devices (phones) that the new creative class will get these things whether employers deliver them or not.

Top 10 expectations of the new creative class:

1. Mobility...work anywhere but still have hallway conversations and other serendipity
2. Openness...don't even try to hide the truth or even spin it
3. Technology is a personal statement...what is your tech saying about you?
4. Featherweight apps...do one thing very well...less is more
5. Cloud first...they don't care how hard it is to get there from here...they are already there
6. Sync...Dropbox...ambient communication that just works
7. Social Media...Dunbar limit hits media.
8. Unstructured in a structured way...Evernote
9. Security, trust and scale matters...gmail 2 step verification 
10. Blurred lines forever...wherever you go, there you are.

Sounds awesome to me.  Where to I sign up!  Hire the new creative class!

Jeffrey's Law

Jeffrey's Law:  We will always want more than Moore.

This Jeffrey is Jeffrey Katzenberg of DreamWorks fame, and he shared at the HP Discover conference last week that does not think that Moore's law is moving quite fast enough for his needs.  Moore's law is propelling the computers so fast that most computer people think that the pace of change will not be sustained for much longer than this year and next. But Mr. Katzenberg is not saying that he thinks it is going to slow down, he believes that even if the computer industry does continue to double the number of transistors on a chip every year -- it will not be fast enough growth for him.

What he knows, after 40 years in the movie business, is that every time the computers get faster, he thinks of even more ways to use that speed.  And soon computers are going to be using computers to make movies...

He explained that every animated movie now has 3 billion renditions, and takes 400 people 5 years to make.  So I can see his point:  Gordon Moore, despite his amazing foresight, is just not moving fast enough for Jeffrey Katzenberg.

Great Marketing is Self Propelled

A few of us at the office are participating in the Movember fund raiser to benefit mens health -- specifically Livestrong and the Prostate Cancer Foundation.  Clearly worthy causes, and also just plain fun to participate in.

I am making pretty good progress half way through the month, moreso on the not shaving than on the fund raising:  so if you want to make a contribution, click here!

Participating in this effort has been so fun and easy that it has made me think about the greatest self propelled marketing campaigns of all time.  

Ad Age has a list of the top 100 Advertising Campaigns of all time.  The top 5 are the ones you would expect:

• Volkswagen
• Coca Cola
• Marlboro
• Nike
• McDonalds

Those are great, but hardly self propelled.  Maybe "Just Do It" but even that has some serious investment behind it.

I am reading the Steve Jobs biography now so I can't go without mentioning the "Think Different" campaign he created with Chiat/Day when he came back to the company in 1997.  That has to be on the list.

For me though, there has never been a campaign quite as effective as washing your hands after using the restroom.  Sure it is not as exciting as the 1984 superbowl ad, but think of the beauty of the thing.  

I am no biologist, but of the germs we want to kill when washing our hands I bet only a fraction of them origniate in the restroom.  What makes the campaign so elegant is that everyone has to go multiple times per day, and the sink is right there.  It would be a tall order to launch a campaign to convince people to wash their hands after shaking hands or after coughing or sneezing or touching a door knob.

Anyway, Movember.  Check it out.  It is propelling itself into a great movement -- now with over 800,000 people participating. 

A Facebook for Government Transparency

We want to know more about the way our government works and we want the government to know less about what we are doing.  Unfortunately, right now the trend is going the other way. But what if it did not?  Right now governments use Facebook to follow their citizens.  This is pretty widely documented in countries with poor human rights records like Syria.  We can only hope that Facebook is putting significant effort into keeping our government from turning Facebook into the ultimate citizen watching system.  Ironically, in America where Facebook was created, we are the ones that are supposed to have access to the doings of our government and our government is not supposed to have access to our private lives. 

Imagine a Facebook for government.  Each representative would have a page.  All associations ("friends") between elected officials and donors and lobbyists would be listed.  All meetings, emails, phone calls, and flows of money would be cataloged and displayed for anyone to see.  It would be a citizen’s dream: transparent representation.  Right there on your representative's "wall" would be their attendance and voting record.  Cool. 

Who wouldn’t want such a thing?  Well, what honest government would not want such a thing?

The Value of Second Level Assets

A smart Wall Street guy recently described to me a new way to think about the value of a stock in an overheated market.  He proposed that there were really two parts to value.  The first of course is the underlying value of the share.  And the second is the option the holder of the share holds implicitly to sell the share at a time of his choosing. This could be called the option to sell to the greater fool, but let's not start calling people names.

This second layer of value can be greater than the first.  In other words, particularly in a momentum market, the right to sell is worth more than the stock itself.  This is interesting because it is a good visualization of an emerging class of assets that derive their value entirely as a function of their relationship to an underlying asset. 

Some will say this is nothing new.  A steak at a steak house costs three times as much as a steak at home.  Such an item could be described in two parts as well: the steak and the experience of eating it at the steak house.  Again the second part is likely more valuable than the steak itself.  Milk at the Mini Mart has two parts, the milk, and the convenience of buying it quickly. 

In markets where innovation is changing the cost of producing and delivering things, the cost of the underlying asset is decreasing quite quickly.  Take ebooks for example, the cost to create and deliver the next copy of an ebook is essentially zero.  This creates an environment where it is easy to see how there is relatively more value in the second, derivative asset, than in the ebook itself.   The derivative asset to an ebook could be merely the recommendation of the right book, or who is reading what book, or comments about the book, or quotes from the book.  If you were about to pitch a big deal, how much would you pay to know what the person on the other side of the table was reading the day before your meeting?  At the risk of offending the authors who clearly invest themselves in their craft and create valuable work, we must ask: Is there more value in the marketplace to the second level information about the book than in the book itself? 

Apple, Google, Amazon and Facebook have been named as the new horsemen in technology.  These companies recognize the value of being one layer removed from the actual asset.  Google and Facebook both pay their customers (by offering free services) in exchange for this second level information – so clearly they assign value to it.  Apple exploits the second level information less than the others – mostly because it’s history is making money selling devices.  They are getting smarter about this all of the time and the Apple iCloud announcements last week betray their interest in being in the second level game.  Amazon is the one with the superior business model.  Not only does Amazon make money selling products, but they are expert at using the second level information to sell even more stuff.  Amazon has a much more concrete awareness of what you “like” and knows how to use that information to present you with other products to purchase.

More examples of this construct emerge every day, and many in places commonly thought of as confidential:

• Banks:  I received an offer today from my bank to purchase access to their database of financial statements.  These are financial statements their customers have submitted as part of their traditional banking relationship.  Banks make money in many ways, and now they are making money selling access to the information they collect about their customers.
• Phone Companies:  The contents of your phone call cannot be “tapped” without a search warrant, but law enforcement regularly pays the cellular companies for the second level information.  That data includes, who you called, how long you talked, and where you were (while talking or just while the phone was on).  Law enforcement does not need probable cause or a search warrant to get this information and the cellular providers have automated access to the database, so the fees they collect are pur profit.
• Credit Card Companies:  Your credit card issuer makes 2 to 5% off of every transaction, plus they sell the information about how much you spend at what vendor.  Soon you will be seeing advertisements on your credit card bill.

Where could this go next?  Here are the services I would like to buy:

• On the plane:  I would pay extra to sit next to a thin person or better yet a client or potential client.  In the case of the potential client, I would probably pay more than the cost of the ticket itself.  This could also go for any event.
• Buying Things:  The next time I buy a house I would like to know which houses are going to come on the market next.  So information about people looking to move, getting transferred, or experiencing other life changes would be valuable to me.  Facebook could have this already, but other big databases will likely get mashed up to provide information like this.
• Healthcare:  The next time I get a cold or the flu, or better yet, before I get a bug, I would like to go online and see what is happening in my area.  Who is suffering symptoms (Google has this because people do searches for their symptoms, the healthcare companies have it once people go to the doctor, and schools and employers have it once people call in sick) plotted on a map and compared to historical data.
• The Government:  The government could become the biggest player in this area.  Think of the gold in the IRS’s databases.

Things are definitely getting interesting. Maybe my next post should be about privacy!

Golden Age of the Internet (ending now?)

About a year ago I argued in this post that the Internet would eventually be regulated and we should work to regulate it in a way that works.  I still think that someday the government will get its hands on the Internet and the outcome will most likely be bad.  For that reason I propose that we are currently watching the sun set on the golden age of the internet.  Soon government regulation will be added to the ever suffocating weight of security issues and we will no longer be able to have free access to all web sites or the pace of innovation that we have enjoyed over the past 15 years.

I site the Protect IP bill currently working its way through the halls of Conress as support for my argument.  If passed, this bill will allow the government broad powers to prevent citizens from accessing certain web sites. This affront to free speech would undoubtedly be used by rights holders (entrenched businesses) to prevent innovation.  If you are interested in this subject at all, please visit:  www.demandprogress.org.

Leo Laporte and his guests on TWIT had a great segment at the end of the show on Sunday about this.  Go to the last 7 minutes of the show.  Soon we could be saying: Remember when we used to be able to [your favorite online activity here] on the Internet?

I happen to think that if an Internet dark ages does come about, the overriding maxim of information wants to be free will eventually prevail.  Maybe we would have another round of offshore pirates like we did in the '60s as depicted in the movie Pirate Radio.  A new Internet, located in the ocean and not in any country, beaming its signal directly to the users without government interference.