The shedding genes appears, at first glance, to be very short sighted.  My house is full of stuff I’m not going to need tomorrow; but yeah I retain to insure against the possibility I’ll need it next week.  The bacteria have stumbled on solution to this problem, they steal genes from each other.  In fact they do it a lot, the percentages are huge.  I think this is amazingly cool.  The community can, and will, shed the gene for antibiotic resistance quickly; but if only a handful of the community retain it then the community can survive the reintroduction.   I do that too.  I discard stuff in my house because I know I can recover it from the city around me.

Much fun can be had with this.  For example here is a fun essay on the evolutionary history of the directories in my Unix PATH.  At each point in time it seemed like a good idea, solved a problem; but now we carry the complexity around.  The essay is written by somebody who is under very different evolutionary pressures; so he’s trying to shed those genes.

I’m reminded of how the 1984 macintosh shed the genes for memory management, because it wanted to reproduce more quickly than the Lisa.  Getting that gene back wasn’t easy, but the design pattern certainly didn’t get lost.

The dialectic between reproducing fast and remembering and copying all the important design patterns is a key challenge in any new product.  It is the curse of experience that you have a deeper catalog of design patterns you feel you must decide if you will or won’t pack them into today’s new product.  I’m always a bit bemused by how casually presumptive some people are about the absolute necessity of packing in this or that thing.   For example: first customer contact v.s. QA?  For example: delivery or modularity?  For example: features or cross platform.

The answer tends to fall out of the R-selected v.s. K-selected nature of your business ecology.   It’s part of what makes small businesses radically different from big ones.  Which reminds me of who eats the bacteria.

So in this amusing game of analogy what plays the role of antibiotic.  QA is a kind of antibiotic, but I think a better example would be the skills that organizations need to have to defend themselves from the dark arts – i.e. the agents that immunize the organization against the numerous bad ideas found in the business cults.

And then finally, let’s says something about how the bacteria draw upon their community much as I draw upon the city around me.  In a business context I think that explains a lot about the survival value that comes from situating your small business inside a geographic region or virtual community from which you can draw in the craft knowledge you’ll probably shed in exchange for fast growth out of the box.

Writing about Amazon: “Organizing into services taught teams not to trust each other in most of the same ways they’re not supposed to trust external developers”

Or writing about a fundamental truth: “Accessibility has an evil twin who, jilted by the unbalanced affection displayed by their parents in their youth, has grown into an equally powerful Arch-Nemesis (yes, there’s more than one nemesis to accessibility) named Security. And boy howdy are the two ever at odds.”

But then getting to Google’s deepest fundamental tragic flaw: “one last thing that Google doesn’t do well is Platforms” … “product is useless without a platform”   …  ”.Google+ team took a look at the aftermarket and said: “Gosh, it looks like we need some … Let’s go contract someone to, um, write some… for us.”  … “Any teams that have successfully internalized the notion that they should be externally programmable platforms from the ground up are underdogs” … “The problem is that we’re a Product Company…”

ok, nevermind.  But,  I think it’s shockingly exactly right and in the long run it’s not a bad reason to short Google.

If I’ve peak’d your interest read the whole thing.

I suspect this says something about Hal Varian’s status in the senior leadership.  I presume he understands this.  But maybe not how fundamental it is.

Lion answers that question.  Fast and hard seems to be the answer.  I impressed!  And, good for them!

This will be very disconcerting for long time Mac users, a real culture shock.  They will complain, a lot.

Stewards of high tech platforms have to manage a balancing act.  If they don’t force the migration of their users into the future the platform dies.  Doing this runs counter to the cliche that you should listen to your users.  In this case your users don’t know diddly.

Usually when this happens the platform steward is chasing a future innovated by some upstart.  As Google is now doing with Facebook and Twitter.  As the voice telco industry has long been doing with the internet.  And in such cases the existing culture around the existing product is a nearly immovable object.   For Apple the upstart is in house.  I bet that’s an interesting story.  I wonder if you stand outside the Apple campus you can hear the shouting matches.

What’s unique about the Apple situation is that I suspect their primary source of new Mac OS X customers are users who already used the IPhone.  The discomfort those users feel when they encounter the Mac must be huge.  Sum that up and I bet is is much larger than the discomfort the Mac installed base is going to feel as Apple forces them into the new user experience.

But enough about the b-school view of what Apple is doing.  A few comments about the actual changes.

The mouse is pretty much dead, long live touch.  I can’t wait to experience how they designed all that.

Respect for screen real estate is back in a big way.  I’m delighted.  I’m very intrigued by what they did with scrolling, scroll bars, and window resizing.  It looks awesome.  Full screen apps are a no brainer.  If they werent’ so damn modal I’d have expected them much sooner.  It’s interesting to think about what it is that enables them to finally arrive now.

Applications now just are.  They don’t run, they are.  User experience guys have known for decades that this was the right model, so it’s nice to see that we are finally doing it.  The design looks sufficently elegant and complex.  Particularly the codependency on changes in how documents are managed.

I can wait to try this.  Really.  I think this maybe the first Mac OS release since the beginning that has called out to my fancy like this.

First the prolog:

• Open with how grateful you are for the ideas and help the host (and/or the most powerful people in room) provided in starting your firm.  But, don’t explain why.  Leave that a mystery to hook your audience.  Set the hook “i’ll get back to that.”   Note how this reframes the usual thanks to the host for inviting you.  Note you don’t need to know these people, but you should have done your homework and be familiar with their ideas, papers, books, failures and achievements – certainly there is something in there you can use.
• Introduce your founding myth.  The characters in the founding myth should be drawn from a sacred category, e.g. mom, family, your tribe, citizens, the profession of your audience.  Populism can work.  Customers is kind of a weak form populism.  Nine times out of ten these stories seem to involve a mention of family.  The pain the product resolves is introduced here, as felt by this representative of sacred/worthy group.   This works for a few reasons.  First off banishment from home is the usual kick off of any fairy tale: so this make your audience comfortable.  Secondly it draws our their empathy, everybody cares about mom.  It also makes you out to be a caring person so the audience begins to identify with you.
• Introduce the broad themes of value generation.  It’s good if at this point you can begin to introduce yourself as the agent of resolving the problem previously introduced.  Your frustration at being unable to aid those in need.  This is becomes the quest in the classic story template.
• Start to tempt the audience.  Letting them glimpse the solution.  Letting them glimpse an artifact or a prototype at this point can be good, but don’t show it to them!  This creates an appetite; which if can heighten by delay.  This might be a mistake if overplayed, I’ve noticed audiences that stop listening as they attempt to catch a glimpse of the hidden product.
• Finally notch up the frustration at lack of resolution both for you as hero, and for your homie.

That end’s the prolog.  Now this is a VC funded start-up; so we need a industry game changing story.  That prolog doesn’t provide that.  In a story telling frame you now want to introduce the evil king (current industry structure) and how your firms innovative addition is going be the revolution.  At this point we are shifting out of the fairy tale frame and into revolutionary group forming.  You want to create in the audience a desire to join the revolution.

• Tell story of current industry structure.  This structure must frustrate, bewilder, and/or anger you – our hero.   Done right you will not need to say it, but your audience will see how the glimpses of a solution you gave before foreshadow the resolution of these issues.  At this point you must have quantitative data; at least charts.  Trend lines, preferably exponential, illustrating how it is only going to get worse.  A bit of casual social science about why it’s in the culture of the evil kings is good at this point.
• This, or just after the next step, is a good point to resolve the quesiton of what you learned from your those powerful people in the room, it shouldn’t be the whole answer – it should be an addition to the core.
• Now you can finally reveal the solution, but though not the demo or the prototype.  You can and probably should be rational, and quantitative.
• Now double the bet.  Make it clear that the pain your addressing is felt so widely that there is broad demand for a new paradigm.  Clarify why your solution enables it.

That fits most of the stories I’ve heard.  Occasionally there is another element.  Notice how that story is buyer facing; but it is good if you have additional bit that talks about how you have unique supply side advantages.  The lamest form of this is a single patent or research result.  In the story telling metaphor this is part where our hero picks up his band of uniquely talented buddies – the brother who can swallow the sea, the cat that talks, the cloak of invisibility.   Weaving these into the story is tricky.  Too much too early and the audience figures out what your doing too soon – which leads to their minds wandering and then they make up objections.  But it’s cool if you can get them into the story early and the mystery of how your going to use that cofounder, or that unusual technology can suddenly become clear as you reveal your answer.  The other reason to get your supply side advantages into the narrative is so you can have charts that show how this revolution is inevitable and timely.

Timely is good because it answers the objection – why hasn’t anybody done this before?  Inevitable is good because it creates urgency to move now; before the revolution/wave – and it’s wealth generating power – breaks.

That framing is another standard framework.  You want to get a population (this industry) to move you build them a golden bridge (your solution) and set fire to their village.  You need to make clear that the problem your solving scales up to being so serious and widespread that the industry is soon going to be on fire.

I was surprised at first that nobody every goes back and explains how their Mom has now been made happy.  But that’s actually obvious, this is a start-up and the story’s not over yet.

But, there are always contrarians.  So some wags have suggested that we should plant only female trees.   The cover story for why we plant all these allergy generators is that the female trees produce fruit and seeds; better known as litter.   The wags suggest this problem can be resolved if we don’t plant any males.

Of course that doesn’t work since we already have a large installed base of male trees, desperately seeking females.

It occurs to me that a city could pass a regulation to force the planting of female trees, and if they limited those to a species of tree who’s males are not currently infesting the city … well this might work.  Obviously it’s time to short the drug companies.

(Hat tip)

This advice turns out to be wrong, for most of us.  There are three reasons.  The simple reason: people buy high deductible policies not because they can afford to cover the cost of small loses, but because they don’t have a clue what they are buying.   Secondly the marketing of these things is entirely a pure confusopoly; buyers haven’t got a chance.  But the third reasons is interesting.

Insurance has plenty of adverse selection and agency problems.  Nominally a benefit of self insuring is that your less like to engage in some risky behaviors since you will personally bear the cost.  On the other had you remove any incentive for the insurance company to bring it’s scale advantages to into the equation; e.g. the insurance company is likely to work for systemic improvements that reduce risk.

So there is an argument to be made that my father’s advice might be wrong.  I noticed this because I have a few medical bills on next to me.  My health insurance includes a deductible.  What I notice about these bills is that I am not getting the prices the insurance company negotiated with the providers.  I am paying full price!  Note that agency is not all bad; since agency creates a locus for skill.  In this case I have lost access to both of these.  Having taken the choice to self insure for the amount of the deductible I now have the option to simulate the skills of the insurance company – i.e. I can call these providers and attempt to negotiate a discount … or not.

So this is another interesting story about middlemen.  There are three actors in this story; the service providers, the insurance company, and the service consumers.  I’m am fascinated to notice a new move in the game that can takes place during the negotiation between the insurance company and the providers.  In exchange for a reduction in prices the insurance company assures the providers that it will sell more high deductible policies.  That’s great for the providers since they can then charge those consumers the list price.  To fulfill the promises made during this negotiation the middleman may have to set goals to assure he sells enough of the high deductible policies.

That shapes the market in very perverse ways.  The small jobs become the high profit work.  My father’s advise become obsolete.  How weird is it that purchasing high deductible policies is a form of free riding – since as long as the insurance company price control feedback is working effectively you get the prices and quality provided by that loop without paying for it.

This is all marvelously and distressingly perverse.  Since poor and innocent people tend to mistakenly purchase high deductible policies (do to regulatory failure enabling market failure) this process shifts costs onto poor people.  I also think this explains why the last car I bought had a bumper design that was prone to failure who’s repair was just bellow the typical deductible.  The dealers presumably like that.   The usual feedback loop thru the insurance company that would fix it wasn’t just broken – somebody removed it.

BP has also cut corners at the expense of its own workers. In 2005, 15 workers were killed and 170 injured after a tower filled with gasoline exploded at a BP refinery in Texas. Investigators found that the company had flouted its own safety procedures and illegally shut off a warning system before the blast. An internal cost-benefit analysis conducted by BP – explicitly based on the children’s tale The Three Little Pigs – revealed that the oil giant had considered making buildings at the refinery blast-resistant to protect its workers (the pigs) from an explosion (the wolf). BP knew lives were on the line: “If the wolf blows down the house, the piggy is gobbled.” But the company determined it would be cheaper to simply pay off the families of dead pigs.

Billions of years ago, in a course on Biotechnology, I got a A+ for writing a long paper outlining a cost benefit analysis for some research on kidney machines.  I’d written the entire paper in a similar sardonic tongue in cheek tone and I was shocked that the instructor seemed to be oblivious to that.  It was, I thought at the time, the most interesting lesson I took from the course.

I must look for a chance to use the The Three Little Pigs as design framework!

So, the new argument I’d not previously seen goes as follows.  It is on the closed side.  A firm can adopt a closed architecture to deal with the rapid technology change.  Closed addresses the immovable installed base problem.  By making closing things down the firm captures the ability to migrate the installed base more quickly.  Or, so this story goes.

When dealing with the risk of technology driven displacement a large installed base is both a blessing and a curse.   It’s a curse, of course, because it is slow to move.  But it is a blessing since there is safety in numbers, e.g. an assurance that when technology changes you’ll not be left out in the cold.   The suppliers and users will have plenty of common cause to help solve to manage the switching costs.   In a closed system the vendor coordinates that.   You could argue that in a closed system the coordination problem is easier to solve.  I suspect that’s not so clear in practice.  The installed base ties it’s fate to the competence of the vendor.  The vendor is a single point of failure.

Open makes firms nervous.  Management is all about juggling risks.  Closed offers the impression your in control.  This impression is often wrong.  Closed systems lead to the systemic blindness; provincialism.  And yet I find the argument that a closed system is better able to handle rapid technology change sounding pretty good.  Possibly that’s because it’s about supply side risks.  I wonder why I think the closed system blindness issue is less serious on the supply side v.s. the demand side.

Having engaged with this debate for twenty years, and now finding it kind of dull, it’s a delight to see a new aspect to it.

We need a name for these networks that enable the trafficking in personal data. How about persona-attribute-info-network or PAIN. There are other PAINs. The credit reporting in the financial industry for example. There are ones in health insurance. There is usually one for every kind of license, i.e. drivers licenses. In the long run, i.e. after fortunes are made and I’m dead, these tend to get a complementary “privacy protection act” that serve to limit the liability of the network owners, raise barriers to entry, and add a modicum of consumer protection.

A key term or art here is “globally unique identifier,” GUI. The social security number is the poster child of a GUI. Leaking a social security number bad for two very discrete reasons. The first is it’s role as a password, but ignore that. The more serious concern is how it is a dependable key that vendors can use to unique identify you. Once a GUI tags your account data the vendor can then trade the data in that account with each other. You licensed them to trade when you assented to their “privacy policy.” I like to joke that they do not lie when they say “your privacy is important to us.” Well yeah, it’s an asset that it is important that they leverage.

GUI come in variations of quality – Social security numbers, email addresses, open ids are all pretty high quality. Cookies are actually pretty good. Google’s Doubleclick cookies can be very high quality. What your are licensing when you leave the Facebook toggle on is tagging you with a high quality GUI owned by Facebook.

A PAIN will have rules that govern the exchange of data between members. And all the usual questions arise. What are the costs, benefits, and risks of membership. Who sets the rules? I think we can assume that Facebook has not bound the members to limit data exchange laterally, i.e. Yelp and Microsoft can traffic in info about you using the facebook GUI as a key. At that point do we care what info Facebook shares with them?

Now, mind you that was all written wearing a care-about-privacy hat. There are other hats!

How about the were-things-are-going hat. It’s obvious that reach, accuracy, and tracking skill of the PAINs is only going to continue to grow. Scenarios long imagined, like enabling the car rental agency to prefill the forms based on your recent airline ticket purchase – a behavior that it pretty trivial to enable, but spooks the user if he hasn’t been carefully preped to comprehend how it happened – are inevitable.

Put on the business-strategy hat; the puzzle is who owns the PAIN that enables the scenarios like, will they make a good landlord, how many such networks will exist, should you try to establish one. The business-tactics hat depend on the answers to those questions. But moving fast maybe necessary or it could be fatal.

Having written that, I think I have a brilliant solution … but putting it here on the end … well it really doesn’t fit.

A quick overview of the story:   First recall that a key link in the supply chain of the subprime mortgage industry was the step where the risky mortgages where bundled and sorted.  The rational was to capture the benefits of diversification, while the sorting’s purpose was to allow investors to select the risk profile they preferred.  Like all the other stages in the industry’s supply chain this part starts out as a sensible thing and over time it transitions into insane.   The story uncovered by Eisinger and Bernstein outlines a plausible story about how a predator appeared on the scene and figured out how to enable the insanity to both continue and redouble.  Doing this in a pattern that allowed the predator to make huge profits when it all blew up.   Credit default swaps, i.e. bets that paid off when a loan defaults, provided a way for the predator play place a bet that would pay off if the house burnt down, and place those bets on houses he had built out of tinder.

An interesting question is then why did the builders willingly create these houses of tinder?  The explanation suggested in the piece is that the builder’s incentives caused, or at least encouraged, the shoddy workmanship.  Each time the bankers put together a new meta-toxic CDO built out of toxic mortgage bonds they got paid a fee; a large part of which flows right into their bonus pool.

But it seems to me there is another aspect to the story.   Industries, just like people, have a strong tendency to be consistent.  Behaviors are hard to change.  You have to discard your current expertise and start over creating entirely new skills – a very very risky proposition.  So there is strong incentive, largely rational, to attempt to continue to with current practice.   So it became increasingly obvious that the entire subprime mortgage industry supply chain was going insane; all the players in the chain were faced with exactly this puzzle.   Into that landscape arrives the predator.  What he offers, sells, the existing players is the perfect product.  A solution to their principle pain point.  A way to keep on doing what they are already doing.

I’ve seen that a few times over my life.   Though never seen it with the added trick of piling on an adverse selection insurance fraud angle.

Moore’s law and his friends have regularly displaced existing, but deep pocketed, industries over the last few decades.  Each time the old, deep pocketed, players grow increasingly uncomfortable.  So they look for ways to continue their current habits and they are willing to pay large sums, acquire foolish startups, and take significant risks to do so.   Sooner or later folks appear on the scene happy to help.  In most of these cases continuing in the old behavior is hopeless; but hope springs eternal eh?  Throw another layer of sandbags on the levee.

But really two things make the Eisinger and Bernstein story orders of magnitude more potent.  The first is the insurance fraud angle.  The second is the bubbling.  If you can play into this game just as the bubble begins to peak; encouraging the bubble to expand while betting on it popping.  That’s when the – ah – fun begins.