Category Archives: business modeling

Facebook PAIN

1 Reply

In the best scenario all Facebook is doing with their new service that allows 3rd party sites access to your Facebook identity along with a bit of what they know about your is a slightly more transparent version of what, say, Google’s Doubleclick can does. They are selling a service to their partners that identifies the visitor. It removing their anonymity. These tracking networks are troubling from a privacy point of view since they enable trafficking in a surprisingly detailed user profile. For example it enables knowing that your currently working, or shopping, or away from home. Browsing Yelp for a resturant? Working on your a Microsoft document.

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.

Blowing Bubbles to Watch ’em Pop

1 Reply

The Jesse Eisinger and Jake Bernstein of  ProPublica’s recently released work on the economic train wreck’s roots is  marvelous.  Listen to it on This American Life!

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.

Originally Written?

3 Replies

I wonder why Apple included the word “originally” in “Applications must be originally written in Objective-C, C, C++, or JavaScript”?

If you are building a platform of unhackable devices then you need to control the gateways to hacking; i.e. the tool chain and the application distribution channel.  So the clause above’s purpose is to due just that; e.g. if you want to hack code to run here you gotta pass thru our  interpreters, our compilers.    But they wrote something stronger.  They wrote is that you have to write in language A,B, C, or D.  Only.    Your not allowed to write in language X, Y, or Z – even if you cross compile X, Y, or Z into A, B, C, or D before you deliver.  I don’t get it

For clarity: this means you may not write a program in say Python, and then run that program’s source text thru a Python to C translator before compiling it before submitting for Apple’s approval.

One of the things that lead me to Lisp was noticing how most of the programs I wrote weren’t in the language the compilers offered me, but instead we would design a custom language better suited to the task at had.  For example the rule system that drive a compiler’s optimizations, get some delicate thing to work on multiple systems, or the custom notations that generate the object system.  Once I accepted how central that is to software architecture, I wanted a language that respected and encourage that.

I’m not terribly surprised that Apple has decided to run the audacious experiment of creating a platform that strives for devices are no longer computers once in the hands of the end user.  Devices which the end users can not hack upon.  I think it’s kind of vile and it worries me that they may succeed, but it doesn’t surprise me.  I should write another post about how potent such a platform will be if they can sustain it.

They aren’t the first to go down this path.  It’s what the locked phones do.  This is what some of the game consoles do.  And I guess if you fully embrace my presumption that the right metaphor for modern websites (aka applications) is that they are massively multi-player games, then it’s only  inevitable  that game  industries  habits would move in the rest of the application stack.

By way of amusement this clause would appear not prevent you from doing a less interesting but still common architectural trick.  I.e. where you write in a dialect of language A, call it A’; and then cross compile from that into A before running thru their tool chain.  So if you can cast your need for a domain specific language into a dialect then you can sort of wiggle around the restriction.  To my surprise there is an important example of this, Caja.  Caja is a dialect of Javascript with some extremely desirable security features.  It’s used by Yahoo and Orkut (for example) to assure that third party widgets are tightly constrained in the damage or snooping they can do to other portions of the web page.

And I guess there is always C++; you can do some very wonky things at compile time in C++.

The Trivial Deep Cloud

2 Replies

I should come up with a snappy name for this prediction:  Doorbells will be cell phones.  What I mean by this is that lots of the very very  simplest  signalling devices, push buttons, switches, etc. etc. are going to work via the cell phone network.  Devices which do not need any of the obvious features of the cell network: mobility, great distance, high bandwidth.  But rather devices that could be hardwired over short distances.  It’s a race between unlicensed standards based open access solutions and the cell phone companies.  If the cell phone companies can offer services to device makers at attractive price points fast enough then they win.

This article shows that at least one cell phone company appears to begin understand this.  Pill boxes – that’s the idea.

I’ll pile on to my guess.  I suspect that the early movers in this direction will get caught at price points that are way too high; and that later movers will be the ones to garner the real volume applications.  What would really blow the market open would be a onetime payment, probably a dollar, which would grant the device maker a tiny bit of bandwidth per month (say a Megabyte/year) in  perpetuity  tied to a single device.  Or how about a kbyte total for the life of the device, for cereal boxes tops.

This is the complement to the insight that WIFI is now table stakes for a cell phone.  What I’m predicting is that minimal cellular service could be table stakes for pretty much any electronic device.  Isn’t “table stakes” an amusing way to say must-have?  Stuff moves onto that list for assorted reasons.

No matter what a lot more signals are going to round trip deep into the cloud.

Guard Labor – II

2 Replies

I’m still chewing on the idea of guard labor, so a pile of random thoughts I’ve been having.

Businesses adapt the ratio between guard labor v.s. productive labor. That ratio varies across firms within industries, from one industry to another, and inside of firms from on department to another. Presumably there is a great deal of peering over the walls. A lot of monkey see monkey do as people search for a different balance. For example if the neighbor organization appears more successful and they don’t spend time on daily progress reporting and your organization does then you might be tempted to jigger things; reducing the ratio of guard to productive labor.

The work done by labor shifts. It can shift into automation or codified processes and procedures. If the neighbor is using an elegant status board your organization might be tempted try that out. In effect shifting guard labor into automation. Processes and procedures are a capital investment. How you depreciate and retire them feeds directly into organizational agility. If a neighboring organization appears to be successful by setting aside their rule book and replacing it with a charismatic manager then you might try that. In effect shifting automation into guard labor.

If you cast this in an exaggerated light you’ll notice plenty of opportunity for polarization. For example guard labor may fall into the bad habit of talking up how lazy the productive labor is; not because they dislike the productive labor but because it helps to justify their role (talking their book). Same thing happens for al the pairs; e.g. X v.s. automation and other roles like customers and suppliers. Most organization players flirt with the guilty pleasure kind of such exaggerated behaviors. It’s worth noting that there is plenty of opportunity for similar polarizing behaviors to be found the variability across departments, between firms, etc.

Automation (or processed and procedures) means that productive labor can be highly guarded even in the absence of guard labor. The assembly line worker’s role is extremely guarded, by the machines that surround him. In that scenario the guard labor ratio is low, with say only one supervisor for a a dozen production workers. So how guarded work is somewhat independent of how much guard labor is involved. Mechanical turk workers might be a example of an outlier in that space – highly guarded work with very minimal guard labor.

It is a challenge to label the axis for how guarded labor is. One extreme might be labeled slavery, bound labor. At the other end we might expect to find labor that is enjoying very high values of achieving the people’s core concerns (appreciation, autonomy, affiliation, …).  There are plenty of things that can bind labor: salary; stock options; roots in the firm or locality; specialized skills; lack of other options. In the Americas importing slaves from Africa was more effective v.s. enslaving the natives, I presume because natives had the option of running away.

Like all costs the cost of guarding can internal or externally born. One point the paper makes is that unemployment acts as a kind of systemic guard. Obviously unemployment insurance acts to temper that effect. If incidences of unemployment tend to be short in duration, that also tempers the effect. The paper suggests that Italy, with high unemployment and low guard labor ratio, might be an example of an economy where the cost of guarding has been externalized. In this mindset taxing firms that tend to have high labor turn over is a Pigovian or pollution tax and helps to encourage the guarding to move in house where it will be on the books.

This posting about slavery is interesting to mix up with the guard labor meme. It’s all a bit rough but there are two rolls of the economic dice mentioned there that encourage the rise of slavery. Let’s decide that what we mean by slavery is state sanctioned and enforced slavery. Not that the other cases aren’t interesting.

The first scenario is the case where owners have land, but labor is scarce. The scarcity of labor means that the cost of owning slaves is lower than the cost of paying them a salary on the open labor market.

The second scenario is high demand for some good. I don’t entirely understand this suggestion; but i find it plausible. If I replace high demand with high volume it begins to make sense. If some labor intensive good is produced at very high volume an large industry will emerge and scaling effects will kick in. That will trigger the search for both the balance of guard to productive labor, the codification of process. In time the nature of the productive labor will become increasingly guarded. The guard labor ratio will rise – the absence of either automation, or technological schemes for assuring the productive labor adheres to the processes. In the extreme case that high ratio will lead to introducing slavery.

Of course you’d also need to be able to implement the bondage. So if the labor can run away, as in the early American colonies, it maybe a lot harder – even with the help of the state and cultural sanction and enforcement. Labor can also run away if you have a diverse economy; so it would seem to me that both these scenarios are much more likely and possibly even require homogeneity – a company town.

The first scenario suggest that in any case where labor becomes scarce the incidence of binding devices will rise. So when labor is scarce during the second world war and wages are capped employers introduce health insurance, which has turned out to be a very effective binding device. It is exaggerated to suggest most of these are equivalent to slavery, but it’s interesting to float the analogy.

Guard Labor

3 Replies

I’m reading, savoring actually, a fascinating essay  on “guard labor” i.e. people paid to enforce the rules upon others.  The TSA, those guys at the front desk of office buildings that check ID cards, the mall cops, the supervisors who’s only role is to be sure everybody keeps their nose to the grind stone, etc. etc.  To first order guard labor is unproductive labor.

One fascinating story in the essay is about canning.  Unsurprisingly cans used to be sealed by hand.  That labor was skilled and scarce; and so they could organize to demand high wages during the short but intensive periods when the crops flowed in and had to be canned before they spoiled.  Naturally the canners sought alternatives and inventors were happy to sell them machines that promised to seal the cans – converting a labor expense into a capital expense.  Interestingly the machines didn’t work but the canners still bought them.  Why?  Because they could use, as a threat, to negotiate lower wages.

Look at this amazing photograph of a sardine canning factory.
[René-Jacques5.jpg]

These are packers, not can sealers though.

There is another fascinating story about long haul truckers.  If you drive a truck, but you don’t pay for the gas, then you tend to drive faster so you can get the job done and go home.  That tiny detail shapes the trucking industry.  Owner operators (i.e. small businessmen) have a competitive advantage on long routes because they drive slower so their overall costs are lower.  Well, at least that used to be the case.  Once technology allowed the fleet owners to monitor the moment by moment trajectory of the truck they could automate the behavior.  A lot of owner-operators went out of business.

That is, in effect, the same story as all of franchising.  If you can create guards then you can roll up small businesses into a franchise chain.  The guards might be technology based (as with the tracking computers in the fleet’s trucks), or they might be tight process and procedures (as with six sigma or some currently popular team programming methodologies), or they might be done with guard labor.  In most cases you use a mix of all the above.

Like “coordination cost” the term “guard labor” (with it’s hint of unproductive and oppression) is a good tool to stuff in your tool kit.  Enjoy the paper  (pdf).

hat tip to mtravers!

Microsoft using patents to shape standards

7 Replies

I’m writing this because Microsoft recently granted a limited license for some awesome intellectual property they acquired two years ago.  I want to temper the press accounts that are tending suggest they granted a generous license.

Almost immediately upon the wide spread adoption of patents industries fell into gridlock.  In a classic game of mutually assured destruction the individual firms in the industry would gather up patents.  Sooner or later somebody pulled the trigger.  If you lack a license to a patent the judge can shut down your entire business.

I think the first historical example of an entire industry shutting down was back in the late 19th century and involved the sewing machine makers.  That was in the days before antitrust laws.  So the captains of the sewing machine industry all got on the train and gathered in a smoky hotel room in Florida; where they invented the patent pool, cross licensing, etc.

An interesting side effect of a good patent pool is that it keeps other players out of your industry.  They only way they can get in is to accumulate enough patents to demand entry.

The anti-trust laws don’t prevent patent pools from arising.  They are common around industrial standards.  The players contribute, often under surprisingly murky terms, patents to a pool.  In this scenario the patents often play an interesting disciplinary role, if you try to implement the standard in a way the standards body considers offensive they remove your access to the patent pool.

Using IP rights in a disciplinary, or exclusionary, manner is also key to the solidarity of the FSF community.  Microsoft plays similar games as well.

For example Microsoft has a short list of psuedo-standards – i.e. standards they either wrote up entirely in-house or were the work of captive standards bodies.  You can see  that list here.  In entirely an entirely unexceptional manner they then grant a license to practice a limited amount of the IP on some of their patents.  Just what you need to implement the standards, nothing more, nothing less.  Of course a naive journalist might think these licenses are more generous then that.

The IP that Microsoft captured two years ago is incredibly useful for solving internet identity problems.  In particular it could be used to allow users to reveal only exactly the minimum amount of information required to do this or that.  If the site wants to know if your over 18, you can let them know yes, you are.  Proving it.  And revealing nothing else.  If the site wants to know if your credit score is over 550; it can do that that.  It’s incredibly clever tech.  It’s incredibly useful.  If your the kind of person who thinks patents should exist, but only for really really innovative ideas – well this is it.

Sadly though.  This tech could be solving a vast range of real world problems today.  It could have been solving them for years and year now.  So if you looking for an example of IP rights undermining innovation and real world problem solving – well this is it.

If you are looking for interesting examples of a company using patent rights to shape the market toward standards that they own and operate then – well this is it.

Of course nothing is to stop  foolish journalists from writing junk like: “This is a irrevocable promise by Microsoft that the company will not assert any claims against anyone using the technology that relate to any patents covering the technology.”  Which is bull.  You can use this IP only in implementing that short list of standards.  Only two on that list actually.  And I suspect only one of them, e.g. the standard that implies you have adopted Microsoft’s in house solution to the identity problem.

Hegel & Brown’s Big Shift

2 Replies

Makes sense to me:

  • Knowledge stocks -> Knowledge Flows
  • Knowledge transfer -> Knowledge Creation
  • Explicit Knowledge -> Tacit Knowledge
  • Transactions -> Relationships
  • Zero Sum Mindset  -> Positive Sum Mindset
  • Push Programs -> Pull Programs
  • Scalable Efficiency -> Scalable Peer Learning
  • Stable Environments -> Dynamic Environments

I’ve not read the book.  Three things I might wonder about

  1. Won’t economic actors will strive to own or control one or more in the first column to enable the item in second column?
  2. Isn’t there something deeply at odds between the point about relationships and the point about stablity?
  3. Why is there nothing here about the the shifting slope of the power law curves?

More here…

I got the book out of the Library.  It’s awful, maybe they out sourced the writing.

Cloud Wiring

1 Reply

In this morning’s batch of bargain shopping news feeds appears this already  exhausted  offer.  For nine dollars Target was selling a gadget from GE that looks like a light switch; you toggle it’s toggle and it then sends a radio signal to a module across the room to turn on a lamp.  Since  I live in a house that was build before electricity it would be very useful, but once a gadget like that costs less then ten bucks it’s unclear to me why anybody would pull wiring even if you were building a house from scratch.  Building codes possibly?

No doubt that widget has just horrible engineering.  Terrible security for example.  Sloppy RF design which no doubt ruins your WIFI whenever you touch the toggle.  I’m assuming that widget is based on a bawky old industrial standard.

It’s an interesting puzzle when we will finally make the transition.  Today the vast majority of the controls that sit around the house have a wire behind them rather than a radio.  Someday the majority will have a radio behind them.  And just as interesting is how the market will shake out.  One thing that frustrates the transition is how fast the technology moves.  If we standardized on anything the tech would move on before we got it deployed.

Maybe these control signals will move thru the cellular network?  Push the doorbell and an SMS message gets sent to it’s cellular service provider who then routes the message back to your household’s high fi who’s speakers then  discretely  make the announcement that somebody is at the door.  A similar, but different, story for the household thermostat.  In that case the house would have a dozen tiny  temperature  sensing faceless cell phones scattered about the house, move them if you like, who’s only purpose is to pass  occasionally  information about the  temperature  in their environment.

All this could be done instead over bluetooth or wifi or yet-to-be-named.  And, I guess, these days the marginal cost of the widget/phone supporting lots of different schemes for connecting to the net.  But, cell phones are amazingly cheap.    I have a suspicion that the cost advantages of the cellular system’s widget production and the associated tangle of players is going to pull things down that path.

This is, of course, another part of the puzzle around Android et. al. and the puzzle of where in the stack things are more or less commoditized, and the eternal flame of who will own what in the network operating system.

Nexus One

1 Reply

pastedGraphicRumor is that Google will offer for sale to the general public a phone based on the Android platform, real soon now.  Here is what I hope they do.  I hope they announce a slew of phones, not just one.  That they offer a shop where you can pick any of N Android phones.  In my opinion it would be a mistake to anoint one Android phone as more or less worthy than the other offerings.  Further I think that if they want to break the tie between the phone and the cellular service they need to break the up the distribution channel in some manner.  There are plenty of tiny electronics manufacturing firms all over asia who can build these things, but they can’t distribute them.  No doubt Google wants to fix that.

I think they ought to announce a premier phone that sets a bar for these firms to aspire to, while also putting a bit of a fright into the other smart phone platforms.  I expect that phone to have some Google branding juice.  But what does that signify?  Does it signal that Google is now a cell phone maker (in the eyes of consumers)?  I hope not, I hope it only signals that the Google added value is inside (i.e. the proprietary applications).  When Sony or LG makes an Android phone based phone they will want to put that have that bit of tatoo on their phones and then it certainly won’t mean “phone from Google.”

All this assumes that Google’s overarching goal is to make cellular internet access more of a commodity than it is now.  That goal, to commoditize one of their key complements, is far far more important than having a profitable phone business.  For that to happen you have to disrupt the distribution channel that currently keeps phones, cellular service, and long term contracts in a death grip.  Building an alternate distribution channel is key.

Oh and, I’m wondering if the Apple product that is the topic of many rumors will be, ah, pliable.