Jane Jacobs has passed away.

I’ve often sorted people into two groups. Those for whom the fact that the minimum width of a sidewalk is 12 feet seems obvious v.s. those who don’t get it. Jane Jacobs was in the first group. We will miss her.

Michael points out a nice article by Chandler Howell discussing ways that sellers can game eBay’s second chance mechnisms to assure they get the best price.

First off recall how an eBay auction works. The seller puts up his vintage pezz dispencer and the buyers put forward various amounts they are willing to pay. For example; $10, $15, $100. Ebay, in it’s role as market maker, computes the winning bid. In this case the guy who bid $100 gets it; but he only pays a small increment over the second highest bid.

That’s a nice example of the problem that frustrates all sellers. The buyers hide what they are willing to pay. If the seller in this example had known that the highest bid was $100 then he could have hired a shill to bid $99 and practically no risk.

In the liturature about pricing this is called the “hidden price” problem. I love that term because the first time encountered it I was reading about hotel room pricing and the paper went on an on about the problem of the hidden price and i thought the price in question was the minimum price the hotel would be willing to rent the room for; but no it meant the maximum price I would be willing to pay for the room.

EBay’s second chance program can be used to solve the hidden problem for the sellers. The nominal purpose of second chance is to allow sellers to sell their item when the buyer fails to follow thru on the purchase. For example he wins, but he never sends the money. This is probably reasonably common since buyer’s remorse is a natural part of the sales cycle. But second chance solves the hidden price problem by allowing the buyer to introduce a shill with no risk that the shill will have to actually buy the product.

The seller sets up his auction to assure he can do second chance – he pays a bit extra for this and does some extra work. For example he has to do a buy it now auction and then quickly have his shill make a low bid so the buy it now option is removed from sight. He then waits till the auction is about to end and has his shill make a very high bid. The shill wins the auction for slightly more than the value of the top real bidder. At this point the buyer knows the maximum bid of the high bidder. Latter he pretends the shill failed to pay and he offers it to the high bidder for that price.

Of course from the market maker’s point of view, i.e. eBay, the problem they are trying to address is that some percentage of auctions don’t work out. Buyer’s remorse is only one reason why a buyer might decide to fail to complete a transaction. Incompetence of either the buyer or the seller is a common reason. There is a marvalous term in the auction liturature called “winner’s curse” that points out that from a statistical point of view auctions are a bizzare way to discover the value of a item. Instead of getting the average of a large number of valuations the action coughs up the most outragous valuation. Buyers who win at an auction sometimes realize that and back out because they now know nobody on in the whole world of eBay things that pezz dispenser is worth what they just bid.

The seller like that curse. Using a shill and second chance can assure the winner is maximally cursed.

Spirit dancing suggests that my wife’s work triggers a reminding of Grant Wood‘s American Gothic. interesting.

I wonder if the big blogging sites have AD sales teams that place exactly the right add on blogs which are suddenly having their 15 minutes of fame. The volitility of long tail actors is very high; so it’s critical to catch those slashdot moments. Automated (look ma no hands) ad placment is all well and good, except when it’s stupid.

This is analagous to the puzzle of how to deal with the traffic peaks around slashdot moments so you don’t capture all the eyeballs you possibly can when they go by; but in this case the consequences go directly to the bottom line.

In both cases this is an example of why aggregating a stable of longtail actors can be critical to making the system function well.

While can imagine decentralized automation that quickly spreads traffic peeks across a collaborative group it’s much harder for me to imagine a scheme that brings AD placment talent to bear in a distributed manner. I can imagine that this is a feature that all the add networks would obviously have, or ought to.

“The last thing Brandon wanted to do …” is how the typical newpaper article begins. I guess you could call that introducing the hero. Or maybe it could be called hero based journalism. If Brandon’s a celebrity all the better. So, here we go …

Vinod Khosla, founder of Sun and a former Kleiner Perkins VC, wants to kick start a change in the planet’s energy economy.

Sorry, I don’t seem to be able to quite pull this off. Well maybe with more practice.

In anycase you can see Vinod’s sales pich in this Google video. In short the arguement he makes is that a) Brazil has demonstrated that ethanol is cheaper than oil, b) it’s trivial for the existing installed base to switch, c) this politically doable, and d) there are is the potential the technology will make the whole thing even more compelling.

I once watched two old brothers who ran a jewlry story argue with other about the price of a engagement ring; so their customer wouldn’t have to. Such service! He’s doing a pitch; and he’s very practiced at it. It’s alwasy fun to watch a master at work as his craft. The video is fun to watch as theater.

A sophisticated entrepeur knows that the only problem worthy of his attention is how to coordinate the parts to create the change he’s hoping to achieve. For a platform vendor the hardest part to move is his installed base. Changing the energy economy is hard because the entire system is so deeply woven into the fabric of society. It’s clear that a portion of what attracts Vinod to ethanol is that moving the installed base appears plausible.

Installed bases are hard to move because they are interlocked in complex patterns of complementary bits and peices. They are like a house of cards; you can’t move one card; you need to move them all. So the entrepeur looks for places where he can slip a new card into the structure. The installed base sees these moves as risky and it’s natural response is to reject them. You need to have a significant dose of benefit to overcome the resistance; the switching costs.

The installed base is a network with the usual collective costs and benefits (network effects); a house of cards in a kind of pseudo equalibrium. Society and it’s entrepeurs have lots of tools for trying to reshape these systems and it’s interesting to see which ones Vinod is advocating we should pull on.

The dominate A-frame in the structure of the petroleum market is, to here Vinod tell it, the two sided network effect who’s touch point is the gasoline distribution system. Petrol production on one side, it’s consumption on the other. Vinod, the entrepeur, sees that system as caught in an unfortunate equilibrium that is no longer optimal. The capitalist entrepeur looks at that situation and sees a fortune to be made.

Just as the way Windows is a virus platform and phisher’s delight, the transportation fuel platform is in desperate need of a major upgrade. Unlike Windows this fuel platform lacks a single vendor to coordinate finding a solution. I guess that’s good or bad depending on your mood. Lack of a central coordinating entity can be good for innovation; the example of Brazil’s success (note that I’m taking Vinod the pitchman’s word for it) is an example of that.

In the absense of a central coordinating force it can be very hard to move a two sided network. My standard model for this a bridge over a river. If you build a second bridge far from the first one nobody will go over it because you don’t have the infrastructure to support the bridge on either side. The puzzle is how to get the bridge bootstrapped. You need to create a situation where their is supply, demand, and a bridge all at one. I.e. you need to lean the two cards against each other just right so they stand up.

Vinod’s pitch for high ethanol petrol substitutes is that we are almost there. There are lot of cars on the road today that can use both fuels. Who knew! And, it’s not terribly costly for auto makers to make more. We know how to make ethanol at very reaasonable prices. But, we don’t have hardly any gas stations that carry the stuff.

So Vinod wants the central goverment to mandate some things to “kick start” the transition. He wants 10% of the petrol stations forced to sell high ethanol gasoline substitutes (the so called E85). He argues that this is necessary to give “wall street” the confidence it needs to build the ethanol production facilities. It’s not hard to object to that. Presumably if you create a fuel that’s significantly cheaper the gasoline you wouldn’t have much difficulty finding buyers. In turn it’s not hard to counter that objection buy pointing out that the situation is more than urgent, it’s desperate. But that arguement isn’t really what facinated me.

What facinated me in Vinod’s pitch was pondering about motivations. This is a huge transformation and different actors in the game have very different motivations. For example Bill Gates would probably be motivated by the idea of owning the transportation fuel platform. There was one slide the Vinod pop’d up at one point showing that the poorest regions of the planet are probably the best venue for the crops that become ethanol feed stocks.

Possibly because his audience was a bunch of Silicon Valley geeks at Google Vinod spent some time talking up the latent possiblities of biotechnology for making ethanol even cheaper. I swallow that hook line and sinker. It appears to me that there is a lovely confluence of opportunity there.

But, I can’t help wondering. What patent rights Vinod is working to capture and where on the planet he would build his first half dozen ethanol plants. Assuming, of course, he can get the kick start problem resolved. On the otherhand nothing is a distructive to fixing a tough problem like this as getting fixated on the other actors’ motives.

Meanwhile the hacker/DYI/small-is-beautiful crowd will enjoy this page on making your own ethanol still

My wife’s blog has become far too popular for my current server configuration. So the time has come to relocate the handfull of sites and blogs I run for my circle of friends out of my basement.

Where should I move? Feel free to email me suggestions. I’ll sumarize.

I’ll need ssh, apache, perl, php, unix shell, vhosts, mysql, etc. etc. I don’t particularly feel the need to control an entire machine; so virtual hosting is ok. I have some preference for FreeBSD. I assume I’m looking for a vendor who has high economies of scale, but is still passing those onto his customers.

This is depressing and frightening and it should be the only topic under discussion in the public sphere right now. The adminstration has gone insane. Now what do we do?

Attacking Iran is self distructive. What kind of a reputation will the nation have left afterward; why will any nation every consider us an ally except for the most cooersive of reasons ever again?

Nuclear weapons! For God sake, they are seriously considering their use. The time for the Congress to stop these people has long passed. The nation, and particularly the Congress, have got to get out of our collective state of denial about how dangerous our leaders have become. They have learned nothing. They have become delusional. You can’t negotiate with people like that, but they must be stopped. Which is what the checks and balances are for. God, I just hope they aren’t entirely rusted out and coopt’d.

A naive model of actors in the economy treats them as a directed graph of buyers and sellers. Goods and services are exchanged for money along each link. In the primitive barter economy good and services flow both ways. In a barter economy it quickly becomes apparent that some goods and services can be exchanged more easily; that property is known as fungiblity. Chocolate is more fungible, bicycles made for two are less so.

The whole point of a cash economy is that it, like other standards, eliminates from the negotiation between buyer and seller some one variable and allows the negotation/barter to proceed more quickly. It lowers friction. We don’t live in a purely cash economy there are lots of alternative payment schemes. I have yet to met a small auto repair shop that won’t give you a discount for paying by check rather than credit card. If you really want to make them happy ask about the discount for cash. Years and years ago Click and Clack – from the radio show – would only take cash.

I hadn’t noticed before that the check clearing system can be viewed as a machine for converting checks which aren’t particularly fungible into bank deposits which are somewhat more fungible. In a sense the check clearing system is entirely powered by the differential between the fungiblity of the two systems.

The check clearing system has five players: the buyer and the seller, their two banks, and the clearing house. Back in the day the bankers would close at 3pm and after a bit they’d adjour to the pub to do their clearing. Presumably ale lowered the friction. If you arrange these five players in a circle the checks flow around the circle one way and the bank deposits flow in the other.

Of course all the other payment systems have an analagous infrastructure. We have assorted nouns for that infrastructure for example standard, platform, network each of which illuminates a different aspect of that structure. Because of the coordination required by the clearing house these systems tend to condense into powerlaw distributed systems with a few very powerful players.

Previously I wrote a up a sketch for how blog readers migh guard their privacy by forming reading clubs. The club would reveal the union of what everybody is reading but inside the club it wouldn’t be possible to discern what each member was reading. Last time I stated that engineering this wouldn’t be particularly difficult; but didn’t reveal my sketch for how it might be done.

My idea is/was that the club members would from into a circle. A stream of encrypted traffic woul arrive from the left and be passed onto the right. This traffic would be chat about club business; i.e. what blogs the club is interested in along with notices of the state of those blogs. For example an entry might state “The club is interested in blog vile.example.com as of Jan 12 2006.” or “The blog at embaress.example.com was checked on a 11:14am Jan 21; it last change at 2:37 Dec 17th.” If you record the assertions in the stream for a sufficent period of time you can form a complete model of the blog reading club’s interests and the state of the blogs it’s reads.

My presumption was that individual club members would inject their interests into the stream. This turns out to be harder than I thought. If I inject my interest in lame.example.com into the stream my upstream neighbor can only tell that the club he’s a member of has increasingly lame interests, but if he collaborates with my downstream neighbor then he can pin the blame on me for that. Not good. Ben Laurie pointed this out to me.

The full set of assertions collected by listening to the passing stream is a substitute for a centralize club house were the club keeps their records. That club house is a substitute for the ping aggregation service, i.e. the intermediary the club was meant to avoid. The whole point of this exercise is to hide the reading interests of individual club members from the intermedary.

Ben’s somewhat spontanious suggestion for how to organize this club is to build a club house but run it so the individual members interactions are kept anonymous. Systems like TOR or the anonymous email remixing system illustrate how to let the members communicate with the club house anonymously.

The club house could be a simple web site that enumerates all the blogs the club is keeping an eye. It drops blogs off the list if nobody signals in interest in that blog for a period of time. Club members randomly poll blogs on the list and report what they find back to the club house; including the RSS feed should it change. When a member wants to read his blogs he does sync’s his copy of the club house data. This syncronization can be done in public if the club member is willing to reveal that he is a member of the club. Of course he should synchronize the full database from the club house since otherwise he’d reveal his peculiar interests. By extablishing an anonymous connection to the club house, ala TOR, the member could avoid pulling down the entire database.

While last time I wrote that this engineering a system like this is straight forward, this time I’m less confident of that.

I’m not particularly happy with the introduction of a central club house into the design. Who’s going to volunteer for that thankless task? I’d rather liked the idea that the club members were all asked to carry the same proportion of the load. But now I’m thinking that the streaming around the circle approach is just a scam for relocating the club’s records; and that I”m gotten myself out out on a limb.

Designing distributed anonymous peer to peer databases that enable clubs like this to form looks like a more meaty design problem than I expected. While I’m sure that’s fun for some folks it’s a bit of a barrier to making progress on the problem I care about.

Yesterday and today I used four different web browsers in one day. The New 1.0 Camino is very nice and fast! Fast, like Safari or W3m. But still, Firefox has some complementary action going; which makes it hard to beat that!