Overconfidence and underconfidence: When and why people underestimate (and overestimate) the competition.

This 2006 paper by Don A. Moorea and Daylian M. Cainb* shows another possible reason for growth in income inequality in a knowledge-based society.

People underestimated others’ performances on simple tasks but overestimated them on difficult tasks, leading them to enter with confidence on simple rounds despite the fact that they accurately forecast numerous other entrants.

Yet in difficult-rank rounds, people decided not to enter: They overestimated others’ performances, leading them to stay out of the competition despite the fact that they accurately forecast few other entrants. Thus, skill based tasks do not always elicit overconfidence; instead, confidence and entry rates depend in part on how difficult potential entrants see the task.

This probably means that in a skill-oriented economy, competition for easy jobs is higher, therefore pay is lower than its psychologically "rational" level. On the other hand, competition for difficult jobs is lower, therefore pay is much higher.

* Don A. Moore, Daylian M. Cain, Overconfidence and underconfidence: When and why people underestimate (and overestimate) the competition, Organizational Behavior and Human Decision Processes, Volume 103, Issue 2, July 2007, Pages 197-213, ISSN 0749-5978, 10.1016/j.obhdp.2006.09.002. 

tags: psychology, economics, creativity

What's good for shopping is good for Amazon.

VBeat has an interview with Thomas Kelly, enterprise architect for cloud services at Best Buy:

(November 30, 2011) - Today, Best Buy runs a hybrid cloud with best-of-breed applications and IT governance in place. It also leverages the entire suite of Amazon data products, and even encourages programmers to experiment with new technologies

“Anything without governance becomes a failure potential,” Kelly said. Best Buy manages enormous amounts of data, undertakes hundreds of new IT projects each year and is responsible for continuous lifecycle management, which makes governance a must, he said.

 Amazon is essentially a "shopping cloud" with Kindle Fire as a front end. Soon, no matter where you shop, the chances are your order will be executed by Amazon's servers.

tags: cloud, source, tool, system, commerce, control, synthesis, platform

Lunch Talk: The power of curiousity and inspiration.

'(February 9, 2011) Jack Dorsey, CEO and Co-Founder of Square, gives a presentation on his career as an entrepreneur and pulls examples from his life to present to students what he believes is most important in business. He was the creator of Twitter and is no the CEO of Square, which is a new credit card payment device. BusinessWeek has called Dorsey one of technology's "best and brightest".'

Siri, the Siren of commerce.

An interesting opinion in SpiegelOnline about Siri, Apple's new voice interface:

(11/29/11). Mit Siri hat Apple gleichzeitig einen Grund und ein Instrument geschaffen, um persönliche Informationen abzufragen und zur Profilierung zu verwenden.

Es handelt sich auch um einen großen Vorteil bei der Vermarktung von Werbung...
Apple ist es gelungen, bei der letzten großen Interface-Revolution, dem Touchscreen, alle Maßstäbe zu setzen. Wenn das mit Siri wieder gelänge, würden soziale Netzwerke nicht mehr benötigt, um aus dem Internet persönliche Informationen kommerziell verwertbar herauszuwringen. Es ergäben sich per Spracheingabe von den Nutzern selbst gepflegte Echtzeitprofile mit den Wünschen und Bedürfnissen der Zielgruppe.

 You can get a decent translation at Google Translate. Just paste the text into the box.

The main idea is that Siri prompts users to interact with the device more often, enter important context, and correct mistakes in human-computer interactions. All this provides an incredible wealth of information about the person and can be used for targeted advertisement.

tags: commerce, information, interaction, interface, 10X

Zynga: sweet, cheap, frequent, and easy.

MIT Technology Review has an article that looks into Zynga's business model beyond "freemium."

...what makes Zynga stand out is its success in mining an aspect of behavioral psychology: playing in shorter bursts can be more addictive in the long run.

Unlike companies that spend years crafting elaborate, $60 video games whose stories rival or even exceed movies in their complexity, and which are designed to be played for hours on end, a Zynga game generally asks players to perform quick activities: click here to plow a field in FarmVille; click here to fight a rival in Mafia Wars.

The games are also meant to be conversation starters: you are encouraged to invite your Facebook friends to play with you and team up on various tasks, though you don't all have to be online at the same time for it to work. At nearly any given time, if you stop playing, it's easy to pick up where you left off. In fact, Zynga's games sometimes give you cues that it's fine to stop—for example, by telling you that some plot of farmland won't be ready to harvest for a few more hours.

By making it easy for its games to be consumed in sociable, nugget-sized increments, Zynga hopes to get you so accustomed to popping them into your days that eventually, you'll have no problem spending real money to enhance the experience.

 It's addictive because it creates an illusion of achievement. With Zynga, it is easy to get started and get something done in a very short period of time. Unlike the real life, playing Zynga frees people from the need for planning. Activities are chunked in sweet easy bites. Just like sugar drinks and candy snacks that help proliferate the obesity epidemic.

tags: control, psychology, business, model, content, behavior, games, 10x

Leadership principles in hi-tech.

John Riccitiello, the CEO of Electronic Arts, describes his two principles of leadership:

(Nov 26, 2011. NYT) - So you’ve got to find a way to be incredibly consistent, so when other people repeat the same thing it conjures up the same picture, the same vision for everyone else.
...people are afraid, and you need to paint a picture that everyone can buy into, even though you’re not even sure yourself it’s going to work because you’re trying to see to the other side of a technology transformation. And if you’re not confident, then they remain scared. 

And the second thing is that if you were a key contributor to a process of bringing a great product to market, not only were we going to support you, but my No. 1 job is to get the blockers out of the way so your product can find a marketplace.

Very similar to Steve Jobs' "reality distortion field" and Jeff Bezos' long-term bets, which is also a form of making people believe into a certain future. 

tags: niche construction, control, infrastructure, virtual

Lunch Talk: Where Good Ideas Come From.

A talk at the London School of Economics.

Steven Johnson has spent twenty years immersed in creative industries, was active at the dawn of the internet and has a unique perspective that draws on his fluency in fields ranging from neurobiology to new media. In his new book, he identifies the key principles to the genesis of great ideas, from the cultivation of hunches to the importance of connectivity and how best to make use of new technologies. By recognising where and how patterns of creativity occur -- whether within a school, a software platform or a social movement -- he shows how we can make more of our ideas good ones.

tags: lunchtalk, creativty

a 4-minute version.

Ah, the wonderful things you can learn at Oxford.

 

Is this argument valid?

If two plus two equals five, then grass is green.

Watch the whole lecture here.

The Patent Paradox - BUS 111.

Today, registration for the Winter '12 quarter at Stanford Continuing Studies begins. This post may  qualify as a shameless self-promotion, but I'm really excited about the recent developments.

The material John Kelley and I are going to present is shaping up great. Students will be able to see all sides participating in the patent process, from invention to entrepreneurship to litigation. Here's a preliminary list of guest speakers who have already agreed to talk to the class:

- The Honorable Ronald M. Whyte, Senior District Judge, United States District Court, Northern District of California;
- Peter Staple, President and CEO, Corium International, Inc.;
- John Markoff, Senior Writer, The New York Times;
- Ron Laurie, Managing Director, Inflexion Point Strategy;
- Mark A. Haynes, Haynes Beffel & Wolfeld, LLP.;
- Joe Greco, Beck, Ross, Bismonte & Finley, LLP.

We are still talking to a couple more high-profile people in hi-tech to represent the business side of patents. I expect we'll have a great lineup for students to ask questions and get first-hand impressions of what's involved in the Patent Paradox.

The course code is BUS 111.  Today is the first day of registration and you can do it on Stanford website (click).

Lunch Talk: Innovation for Dummies.

John Kilcullen, the creator of the popular For Dummies brand, tells how this "head dummy" from the Bronx (who had never published a book before) defied conventional wisdom to create an iconic brand of bestsellers.

tags: lunchtalk, innovation, business, quote

quote: Scarcity not abundance drives innovation. (33:52). 
quote: Trademark everything. (48:50)

$20M investment per job created?

There's an ongoing debate about the causes of the slowdown in productivity of American workers, beginning some time around mid 1970-s. The chart below shows trend vs actual productivity since the post-WW|| recession. (the chart below is from an MIT Tech Review article - click to read.)

The IT productivity paradox is often cited as one of the major reasons.

The productivity paradox (also the Solow computer paradox) is the peculiar observation made in business process analysis that, as more investment is made in information technology, worker productivity may go down instead of up. Before investment in IT became widespread, the expected return on investment in terms of productivity was 3-4%. This average rate developed from the mechanization/automation of the farm and factory sectors. With IT though, the normal return on investment was only 1% from the 1970s to the early 1990s.

Recently, economist Tyler Cowen wrote a book on this topic - The Great Stagnation, which I'm in the process of reading. In the meantime, it's important to note that heavy IT investment does not create a lot of jobs. Here's how Apple's new datacenter looks like from a job creation perspective:

(Nov 24, 2011. Washington Post) - Just off Startown Road, on the edge of town, Apple recently completed a massive $1billion data center to help power its cloud computing products.
Total new full-time jobs running the facility: 50.

A trillion-dollar question would be, What kind of innovation creates local jobs? For some reason, I have this vague association between our times and the times of the 18th century agricultural revolution in England. On one hand, the revolution produced a breakthrough in food production; on the other, it displaced hundreds of thousands of peasants [and their children] who had to move to the cities in search of work. Where would all the displaced factory workers go now? Social networking?

tags: innovation, destruction, niche construction, trend, economics, system

Making a difference: praise for smarts vs effort.

An article in the Harvard Business Review by motivational psychologist Heidi Grant Halvorson about the relationship between motivation and performance. It's relevant to invention (creative) work because the work is generally perceived and praised as an expression of an innate ability, as in "He is very creative/inventive/etc!" In some ways it is similar to labeling - a shortcut technique that helps us manage expectations about other people But research shows that praising a child for being smart makes them perform worse, not better.

Dweck and Mueller*  found that children who were praised for their "smartness" did roughly 25% worse on the final set of problems compared to the first. They were more likely to blame their poor performance on the difficult problems to a lack of ability, and consequently they enjoyed working on the problems less and gave up on them sooner.

Children praised for the effort, on the other hand, performed roughly 25% better on the final set of problems compared to the first. They blamed their difficulty on not having tried hard enough, persisted longer on the final set of problems, and enjoyed the experience more.

* Mueller, Claudia M.; Dweck, Carol S. (1998). Praise for intelligence can undermine children's motivation and performance. 10.1037/0022-3514.75.1.33

Lunch Talk: The Jungle Diet.

After the Thanksgiving holidays and before Christmas, I thought this talk would be very appropriate.

Daphne Miller, MD, is a board-certified family physician in private practice in San Francisco. She is an associate professor at the University of California, San Francisco, where she teaches nutrition and integrative medicine.

Dr. Daphne Miller undertook a worldwide quest to find diets that are both delicious and healthy. Written in a style reminiscent of Michael Pollan and Barbara Kingsolver, The Jungle Effect is filled with inspiring stories from Dr. Miller's patients, quirky travel adventures, interviews with world-renowned food experts, delicious (yet authentic) indigenous recipes, and valuable diet secrets that will stick with you for a lifetime.

tags: lunchtalk, health

Lunch Talk schedule for the week of 11/27 - 12/3

11/27/11 (Sunday) -The Jungle Diet, a talk by Dr. Daphne Mille, an associate professor at the University of California, San Francisco, where she teaches nutrition and integrative medicine. Diet as lifestyle, etc.

11/28/11 (Monday) - Innovation for Dummies, a talk by John Kilcullen, the creator of the popular For Dummies brand.

 11/29/11 (Tuesday) - Where Good Ideas Come From, a talk by Steven Johnson at LSE about environments that stimulate creativity.

11/30/11 (Wednesday) - The Power of Curiosity and Inspiration, a talk at Stanford by Jack Dorsey, CEO and Co-Founder of Square.

12/1/11 (Thursday) - On Getting Creative Ideas, a talk by Murray Gell-Mann, a Nobel Laureate in Physics.

12/2/11 (Friday) - Cracking the Stuxnet, a TED talk about the use of computer viruses against industrial targets.

12/3/11 (Saturday) - Golden Rules for Raising a Child, a talk at Google by David L. Kirp.


tags: lunchtalk

Invention of the Day: Electronic Music.

In 1920, a Russian inventor, Professor Léon Theremin created an electric device that could be played without touching. In 1928, he received a patent for his invention and licensed it to RCA. The device started a technology revolution that eventually brought about electric guitars, organs, and even violins.

I claim:

1. A tone generating system controlled by the hand and comprising an electrical circuit embodying an oscillation generator, 'means in said circuit including a conductor having a field which when influenced by a hand moving therein will vary the resonant frequency of said circuit according to the movement of said hand only, and a sound reproducer connected with said circuit for emitting tones according to the electrical variations occurring in the circuit.

 The video below shows how you can play the device (simply amazing!)

tags: invention, entertainment

Lunch Talk: Larry Page and Eric Schmidt at Stanford in 2002.

This is the first part of the talk. AOL was a big deal then. Click here to go to all segments.

Biz models: technology as entertainment.

In the entertainment industry there's a concept of a movie release window. First, the movie is released in  theaters, then on DVD/Bluray, later on TV, after that on pay-per-view or online. Each  release captures a certain slice of audience, depending on people's willingness to wait out the rush to see the latest and greatest. In economics terms, it is an instance of price discrimination.

Steve Jobs, the late CEO of Pixar and Apple, learned from the entertainment industry how to create a media event out of a high-tech product launch. The introduction of iMac, iPod, iPhone, and iPad were deliberately staged to create a rush to Apple stores, theaters of Apple consumer experience. Now it appears, Apple is  borrowing the release window business strategy as well.

Nov. 4 (Bloomberg) -- Apple Inc.’s iPhone 3GS model is more than two years old and shunned by gadget snobs, and yet it’s turning into one of the company’s bigger weapons against devices running Google Inc.’s Android software this holiday season.

The move pits Apple’s iPhone against bargain Android phones, without much damage to the company’s profit. That’s because Apple gets cost savings from using older, cheaper parts. And though the device lacks some of the whiz-bang features of the 4S, such as the voice-activated assistant Siri, it’s still better than rivals of the same price, said Roger Entner, founder of market research firm Recon Analytics LLC.

“Apple can shovel them out by the millions,” he said. “What free phone or even $50 phone is going to be more appealing to consumers than an iPhone 3GS?”

On the subject of business models, we can also see how the world of entertainment is taking cues from high-tech as well. Compared to movies, sitcoms are becoming more like technology release versions - 1.0, 1.1, 2.0, and etc. Studios leverage  fan "installed base," just like software companies do with their products.
As I noted two years ago, sequels make the most money for Hollywood. With an increased role of video streaming over the Internet, sitcoms are an improvement version of this business model.

tags: media, niche construction, business, model, 10X, control, entertainment, information

Happy Thanksgiving! [and movies about inventors.]

Having done your Black Friday shopping, you can  be watching movies about real inventors now (in no particular order).

1. Temple Grandin (2010).
2. The Flash of Genius (2008).
3. Edison the Man (1940).
4. The Social Network (2010).
5. Theremin: An Electronic Odyssey (1994 documentary).
6. Breaking the Code (1996).
7. Longitude (2000).
8. The Secret of Nikola Tesla (1980).
9. A Beautiful Mind (2001).

Lunch Talk: Improvisation in public places.

Charlie Todd causes bizarre, hilarious, and unexpected public scenes: Seventy synchronized dancers in storefront windows, "ghostbusters" running through the New York Public Library, and the annual no-pants subway ride. At TEDxBloomington he shows how his group, Improv Everywhere, uses these scenes to bring people together.

The Brave New China.

(November 23, 2011. VBeat) - Smartphone sales in China for the third quarter of 2011 surpassed U.S. sales, making China the largest smartphone market by volume, reports Strategy Analytics.

The firm’s research found that smartphone shipments reached 23.9 million units in China during Q3, while the U.S. had 23.3 million units shipped.
Nokia leads China’s smartphone market with a share of 28 percent. HTC, on the other hand, leads the US market with 24 percent .

 It is important to note that China is entering a stage in its technological development when its scale  requires new solutions. That is, over the last thirty years, since the introduction of economic reforms, the country could reuse solutions developed elsewhere. Now, they will be increasingly encountering unsolved problems (see e.g. my earlier post about diabetes II in China.) There's no country on the planet that has experience in solving those problems on China's population scale of 1.3 billion people.

In view of that, I believe, over time China will adopt IP laws and enforcement practices similar to those of the US and Europe. The society will have to provide IP protection incentives to inventors and innovators who take on the new problems.

tags: trend, intellectual, property, scale, infrastructure, china

Lunch Talk: Understanding Venture Captial

As a partner at Kleiner Perkins Caufield & Byers, Dana Mead supports entrepreneurs and innovators seeking to make major impact through life science technologies and ventures. In this lecture, Mead talks about Venture Capital, offering great insights about Silicon Valley and life as a venture capitalist.

tags: lunchtalk, business, model

I'm working on what I'm hoping to be the final draft of the book about invention methods. Of course, there's no such thing as the final draft before the book ships, but here's the first couple of paragraphs from it. I'm sharing because I'm sick and tired of reading this all alone ;)

Part 1: Unlearning what’s untrue.

“The most useful piece of learning for the uses of life is to unlearn what is untrue.” 

Antisthenes (445 – 365 BCE)

 Barriers to creativity

There are two kinds of barriers on our paths to breakthrough inventions. Some of them I call hard, the other soft.

Hard barriers are resource-related. They feel like externally imposed limits on what can be done given the circumstances. In contrast, soft barriers are constraints of our minds. They are difficult to overcome because we can't feel them; they are not perceived as barriers by our own thinking.

Chapter 1. Hard Barriers.

These are the most common hard barriers:

- Lack of physical resources;

- Absence of an essential implementation technology;

- No market for a novel product;

- Opportunity-poor environment.

Can we predict that electric battery technology will be the next big thing? Yes, because it will allow us to harvest free energy from the Sun (and the wind). Unfortunately, we blew the last investment cycle on solar (and wind) without much thinking about the readiness of the infrastructure. Therefore, it will take another 10-15 years to mature the technology. In the meantime, here's another candidate for large-scale grid storage:

(November 22, 2011. MTR) - Researchers at Stanford University have now demonstrated a high-efficiency new nanomaterial battery electrode that lasts for 40,000 charge cycles without significantly losing its charge-holding capacity. The work was led by Yi Cui, a materials science and engineering professor at Stanford University.

The electrodes maintain 83 percent of their charge capacity after 40,000 cycles—in comparison, lead-acid batteries last a few hundred cycles, while lithium-ion batteries typically last for 1,000. The electrodes also show 99 percent energy efficiency.

For completeness, Aquion Energy is developing a competing battery technology.

P.S. From a system perspective, storage solves the same kind of dilemma I described in the post about Odysseus and the Sirens [separation in Time.]

tags: infrastructure, energy, economics, storage, system, dilemma

Lunch Talk: Daniel Kahneman challenges the rational model of judgement.

Daniel Kahneman, recipient of the Nobel Prize in Economic Sciences for his seminal work in psychology that challenged the rational model of judgment and decision making, is one of our most important thinkers. His ideas have had a profound and widely regarded impact on many fields—including economics, medicine, and politics—but until now, he has never brought together his many years of research and thinking in one book.

In the highly anticipated Thinking, Fast and Slow, Kahneman takes us on a groundbreaking tour of the mind and explains the two systems that drive the way we think. System 1 is fast, intuitive, and emotional; System 2 is slower, more deliberative, and more logical. Kahneman exposes the extraordinary capabilities—and also the faults and biases—of fast thinking, and reveals the pervasive influence of intuitive impressions on our thoughts and behavior.

 tags: creativity, lunchtalk, psychology, economics, science

Solving dilemmas: Odysseus and the Sirens. [Separation in Action]

In two previous posts (1, 2) about the separation principles we considered the dilemma Odysseus encounters when he approaches the island where the three Sirens live:

[Odysseus]... faces a dilemma. On one hand, he wants to listen to the Sirens' song because it is the most beautiful song in the world. On the other hand, he doesn't want to hear the song because it will cause him to forget himself and run his ship into deadly rocks.

In Homer's poem, Odysseus resolves the dilemma in space and I propose another, more modern solution, using separation in time.

The third key TRIZ principle for solving dilemmas is Separation in Action [Interaction]. In the Odysseus dilemma we have two important incompatible interactions: a) listening to the song of the Sirens (Action 1); b) steering the ship away from the rocks (Action 2).

To get the best of both worlds, i.e. experience the song and not crash the ship on the rocks, the actions have to happen in the same space and in the same time, but independently from one another. In other words, the crew, including Odysseus, should be listening to the song (Action 1), and the ship,
independently from the crew, should be steering away from the rocks (Action 2).

A natural implementation of this concept would be a ship that steers itself. For example, the ship can be on auto-pilot or steered by a robot. This solution was not available to Odysseus, but is available to us. Further, a combination of separation in Action and Space can give us steering by remote control ( or by the will of gods.) You can think up other solutions as well.

====






To summarize all three posts: When solving dilemmas it is important to be patient, i.e. deploy slow deliberate thinking, and explore multiple potential solutions using all three separation principles as well as their combinations. Some of the ideas will be ripe for immediate implementation, others for future development. Since patents last 20 years, it usually makes sense to write up all of the ideas, not only the ones that are going to work immediately.

tags: triz, separation, problem, solution, example, strategy

Lunch Talk: The Story Behind "TED: Ideas Worth Spreading"

"(May 11, 2011) Executive producer of TED Media, June Cohen, looks at how she brought a lecture series with an attendance of a few hundred to over 150 million people across the world. She discusses how innovation and the spread of ideas is key to keeping TEDTalks a platform for doers and thinkers to be heard by the rest of the world."

GPS as a distributed clock.

GPS would not give us accurate readings based on Newtonian physics only. The New Scientist has a neat one-minute video explaining how GPS works, including the corrections introduced in accordance with Einstein's General Theory of Relativity.


tags: infrastructure, detection, science

2012-2015: lucky years to have babies in the US.

In his book Outliers, Malcolm Gladwell notes that the generation of Americans born during the Great Depression ( when the birth rate in the US was the lowest on record) did really well economically. They studied at schools and colleges that were less crowded; they got good jobs working for the Baby Boom generation families, and etc. Now, with the Great Recession entering its 5th year, we see a similar birth rate troff:

(Nov 21, 2011. BusinessWeek) - The number of births fell to an estimated 4 million last year, the fewest since 1999, according to National Center for Health Statistics data. American families -- whose finances have been hurt by high unemployment, falling home prices and low pay raises -- lack confidence to plan for “explosions in spending” required by a new child...

By 2015, women in their childbearing years may average 1.75 babies each, a 30-year low, while “ Americans still believe that two or more children is ideal,” said Bradford Wilcox, a sociology professor and director of the National Marriage Project at the University of Virginia in Charlottesville. 

Taking into account that "The annual cost of raising a child ranges between $11,880 and $13,830 for a two-parent family earning $57,600 to $99,730," parents who plan to have kids now will presumably get an immediate hit, but their children will gain a long-term advantage over other age cohorts. Further, housing prices for families with kids will soon be the lowest in a generation, which will also add to the advantage. 

Lunch Talk. Good Strategy/Bad Strategy: the difference and why it matters.

Place: The London School of Economics
Time: 20 October 2011.
Speaker(s): Professor Richard Rumelt

Type 2 diabetes: it's all in the mind.

Nov. 21 (Bloomberg) - “In Chinese medicine 2,000 years ago, people knew urine could be sweet and people would be thirsty -- they knew the signs of diabetes,” Xing said. “But it wasn’t common.”

The same pace of social change and urban prosperity that has fueled China’s economy in the past decade has fanned the spread of Type 2 diabetes, the most common form of the disease, as people ate fattier foods and led more sedentary lifestyles.


Type 2 diabetes linked to obesity affected almost 1 in 10 Chinese adults in 2008, the New England Journal of Medicine said in a study published last year. That would be a higher rate than in the U.S., where the National Institutes of Health estimates 8.3 percent of the population had diabetes in 2010. Another 148 million Chinese are on their way toward developing the disease.

Clearly, type 2 diabetes is an urban environment disease. Just like swamps facilitate malaria and close proximity to livestock produces flu strains, cities create hundreds of millions of diabetics. Our commitment to certain types of mass manufactured foods is incompatible with the lifestyle. Ever since I did the diabetes 2 project with Roche, I've been amazed of how simple the cure for this disease is and how hard it is to make it work on a large scale. Mind seems to be the most difficult organ to inoculate against wrong commitments.

tags: health, care, problem, solution, scale, infrastructure, mind

A good interview with Jeff Bezos in Wired.

Bezos: There are two ways to build a successful company. One is to work very, very hard to convince customers to pay high margins. The other is to work very, very hard to be able to afford to offer customers low margins. They both work. We’re firmly in the second camp. It’s difficult—you have to eliminate defects and be very efficient.

The second strategy works because you commoditize all system elements, except Control. Commoditization increases the number and types of elements in the system, therefore the marginal value of Control grows while the marginal value of each individual element sinks. For example, the cost of adding a new book or movie to the system is trivial. Having the ability to find, sell, and deliver the book or the movie among millions of other books and movies is priceless. (See slides from my Model-Based Innovation course.)

Justo, the pictures above are for you ;) You can map the two biz strategies onto the system model.
================

His thinking about the advantage of long-term planning horizon is consistent with the logic of procrastination I mentioned a couple of days earlier.

Bezos: If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue. At Amazon we like things to work in five to seven years. We’re willing to plant seeds, let them grow—and we’re very stubborn. We say we’re stubborn on vision and flexible on details.

Being "stubborn on vision" means operating effective commitment devices and aiming high (the upper left quadrant on the diagram.)

P.S. The stuff in the article about competition between iPad and Kindle is nonsense. The two devices belong to two different biz models and don't compete. Post-PC and Post-Web are different parts of the same system (the former is Tool-based, the latter is Source-based). Amazon's real competitor is Google, especially after the Motorola purchase. Both companies are built on commoditization of hardware and scale of cloud services. The best thing going for Amazon now is Google's lack of focus.

Levy: Young startups all tell me that even if Google offers them free hosting, they still want to use Amazon. Why do you think that is?
Bezos: We were determined to build the best services but to price them at a level that customers couldn’t match, even if they were willing to use inferior products. Tech companies always have high margins, except for Amazon. We’re the only tech company with low margins.

tags: innovation, amazon, google, system, model, s-curve

Lunch Talk: Peter Hirshberg on TV and the web (2007 talk).

Lunch Talk preview for the week of 11/20 - 11/26

Sunday (today): Peter Hirshberg on TV and the web - It's a 2007 talk and it's interesting how people saw the relationship between the two types of media four years ago.

Monday: Professor Richard Rumelt talks about the difference between good and bad strategy. (lecture at the London School of Economics.)

Tuesday: The story behind TED. A talk at Stanford about the beginnings of TED.

Wednesday: Nobel laureate Daniel Kahneman talks about behavioral economics and his new book Thinking, Fast and Slow.

Thursday: Understanding Venture Capital, a lecture for entrepreneurs at Stanford. Speaker - Dana Mead, a partner at Kleiner Perkins Caufield & Byers.

Friday: Improvisation in Public places. A TED talk about a new kind of improvisation theater.

Saturday: Larry Page and Eric Schmidt talk about Google. The year is 2002 when Google was not making much money at all.

Invention of the Day: Pantaloons with rivets.

The famous Levi's jeans many of us wear today were invented by Jacob W. Davis of Reno, Nevada, in 1872. The inventor assigned his patent, US 139,121, and went into partnership with Levi Strauss of San Francisco who did good business supplying West Coast miners and workers. The whole patent was a two-pager: one page for the drawing, another for the description.

The problem:

The seams are usually ripped or started by the placing of the hands in the pockets and

the consequent pressure or strain upon them.

 The solution:

To strengthen this part I employ a rivet, eyelet, or other equivalent metal stud, &, which I pass through a hole at the end of the seam, so as to bind the two parts of cloth together, and then head it down upon both sides so as to firmly unite the two parts. When rivets which already have one head are used, it is only necessary to head the opposite end, and a washer can be interposed, if desired, in the usual way. By this means I avoid a large amount of trouble in mending portions of seams which are subjected to constant strain.

Prior art:

I am aware that rivets have been used for securing seams in shoes, as shown in the patents to G-eo. Houghtou, No. 61,015, April 23, 1867, and to L. K. Washburn, No. 123,313, January 30, 1872; and hence I do not claim, broadly, fastening of seams by means of rivets.

The claim:

Having thus described my invention, what I claim as new, and desire to secure by Letters Patent, is—As a new article of manufacture, a pair of pantaloons having the pocket-openings secured at each edge by means of rivets, substantially hi the manner described and shown, whereby the seams at the points named are prevented from ripping, as set forth.

Plugable brain.

(November 18, 2011. VBeat) - The drive, called Cotton Candy, will turn any screen you connect it to into an Android station. You can plug it into a TV, a tablet, a laptop (PC or Mac) — you name it.
The Cotton Candy prototype weighs just 21 grams and is equipped with an ARM Cortex-A9 (1.2GHz) CPU and an ARM Mali-400 MP (Quad-core) GPU. It has Wi-Fi and Bluetooth connectivity options, as well as an HDMI output for HD graphics on any screen. The computer can be controlled via mice, keyboards, smartphones and other USB peripheral gadgets.

My initial reaction was, How incredibly cool! But after some thinking, it appears that the device is useful only because there's no high-bandwidth connection between the monitor and your main personal "communicator." For example, if your smartphone can talk to the screen directly, you don't need Cotton Candy. On the other hand, if it takes too much time for the manufacturers to standardize video communications between various devices, Cotton Candy is a great thing to have. I'd get it for $25 without much thinking. Too bad you can't hook it up to a ceiling mounted LCD projector.

tags: tool, interface

Lunch Talk: Introduction to Visual Thinking. Lecture 4.

A UC Berkeley lecture on practice of drawing.

Trade-off of the Day: business opportunity vs privacy.

After watching yesterday's Lunch Talk video, where Jeremy Bailenson warned against posting high resolution personal pictures on the net, I find this trade-off described in a recent NYT article lacking in imagination:

But facial recognition is proliferating so quickly that some regulators in the United States and Europe are playing catch-up. On the one hand, they say, the technology has great business potential. On the other, because facial recognition works by analyzing and storing people’s unique facial measurements, it also entails serious privacy risks.

The trade-off is false. You may not lose your privacy in a lopsided commercial exchange, but you will definitely lose your money. For example, according to Bailenson, once advertisers know your unique facial measurements they can construct a highly convincing social networking ad that dramatically increases the probability of you buying their product or service. It's very concrete money in your wallet that are at risk, not some abstract privacy rights. Having access to private information is one thing. Manipulating the information to gain psychological and business advantage is another.

tags: privacy, commerce, control, detection

Lunch Talk: Divided Brain.

"In this new RSAnimate, renowned psychiatrist and writer Iain McGilchrist explains how our 'divided brain' has profoundly altered human behaviour, culture and society."

tags:psychology, brain, biology

Invention of the Day: Permanent Loan.

From A History of Money: From Ancient Times to the Present Day, by Glyn Davies:

The Bank of England came into being by the Ways and Means Act of June 1694 and was confirmed by a Royal Charter of Incorporation (27 July 1694). The Act makes it clear that its real purpose was to raise money for the War of the League of Augsburg by taxation and by the novel device of a permanent loan, the bank being very much a secondary matter.

The £1,500,000 was to come from two unequal sources; £300,000 from annuities, and the major sum of £1,200,000 from the total original capital subscriptions to the ‘Governor and Company of the Bank of England’. In return the Bank was to be paid 8 per cent interest plus an annual management fee of £4,000. Thus for just £100,000 a year, and some vague privileges to a bank, and with no capital repayment burden to worry about, the government received £1,200,000 almost immediately.

This was an astonishing success given the abject failure of a number of rival banking-type institutions, but not so surprising given the speculative boom in other kinds of companies being formed around the same time. From the government’s point of view it was an object lesson of the advantages of borrowing as compared with taxation to meet sudden emergencies.

Over time, what was invented as an emergency measure had become a norm. Governments borrow, assuming that the loans are permanent and get surprised (remember Greece?) when lenders ask for their money back. Oops. Nobody thought of this scenario.
Moreover, since the old emergency measure is no longer available, the only other option remaining is creating new money from scratch. 

 

tags: money, control, invention, economics, government

Disruption: everything everywhere all the time.

Disruption has become a meaningless buzzword applied to any new technology to make it sound more solid than the good old "cool."

(November 13, 2011. NYT. Disruptions: The 3-D Printing Free-for-All.) - A recent research paper published by the Institute for the Future in Palo Alto, Calif., titled “The Future of Open Fabrication,” says 3-D printing will be “manufacturing’s Big Bang.” as jobs in manufacturing, many overseas, and jobs shipping products around the globe are replaced by companies setting up 3-D fabrication labs in stores to print objects rather than ship them.

 Let's do a quick reality check. What is the problem the technology is going to solve? Assuming the technology works, is there a large-scale need for making more physical things?

I don't think so. The overwhelming trend is toward creating and consuming virtual rather than physical stuff. Electronic books are killing paper books. Electronic toys are killing physical toys. For example, here's what today's kids want for Christmas:

One generation from now, when the presumed 3D revolution is supposed to take over the world, these kids will be into manipulating 3D virtual objects, rather than printing and throwing them out after they turn out ugly.

Further, there's a lot of research that show people prefer experiences to objects in( see for example, Carter & Gilovich, 2010. The Relative Relativity of Material and Experiential Purchases. DOI: 10.1037/a0017145)

Unlike material possessions, which are typically made to fill a specific, concrete purpose, experiences are often purchased for a variety of different reasons, both abstract and concrete.

 

Transportation cost savings will also be negligent because you'll have to transport raw materials for making the stuff in your home/garage/office. Most likely, 3D printers are going to make a difference in rapid prototyping of new devices or making lawn furniture on demand. Is it going to be a disruption? Maybe for the current prototyping methodologies, but far from a revolution in consumer goods.

Lunch Talk. Infinite Reality: Avatars, Eternal Life and New Worlds.

"Jeremy Bailenson [of Stanford University] shares his research on virtual reality, avatars, transformed social interaction, and related communication and psychological theories, as well as implications for citizens living in the digital age."

tags: information, entertainment, virtual, environment

A recipe for procrastination: more options and an important goal.

(November 14, 2011). NYT writes that it is difficult for beginning runners to start running because they face a lot of choices. The finding is consistent with a 2000 paper by Ted O’Donoghue and Matthew Rabin, "Choice and Procrastination."

- Our first main finding is that providing a person with additional options can induce procrastination. If a new option has a sufficiently high long-run net benefit, the person will plan to do this new option rather than what she would have otherwise done; and if this new option has a sufficiently large cost relative to its immediate benefit, the person now procrastinates.

- Our second main finding is that people may procrastinate more in pursuit of important goals than unimportant ones, or equivalently that increasing importance can exacerbate procrastination. The more important are a person’s goals, the more ambitious are her plans. But the more ambitious are her plans — i.e., the higher is the effort she intends to incur — the more likely she is to procrastinate in executing those plans.

The second finding is interesting because it runs contrary to the common advice to aim high with your goals. That is, for most people aiming high is a recipe for procrastination, i.e. they will end lower if they aim high rather than low. On the other hand, a person capable of dealing with procrastination has an enormous advantage when aiming high. In a world full of distractions, the ability to avoid them carries a large benefit. The famous Marshmallow Experiment seems to confirm this finding.

One way to fight procrastination is to use commitment devices. A commitment device is a mechanism that prevents you from being tempted away from a long-term strategy. For example, tying Odysseus to the mast to avoid the temptation of the Sirens' song is a commitment device.

The Lunch Talk videos I started posting in this blog every day at noon is also a commitment device. It guarantees that, instead of aimless web browsing during lunchtime, I've got at least a good chance to listen to an interesting speaker every day.

tags: psychology, control, education, problem, solution, cognition

Groupon timeline: from startup to IPO

Groupon infografic from www.sigfig.com (via VBeat). Note valuations:

early 2010. Series C financing. $1.3B
late 2010. Google offer to buy. $6B
early 2011. Series D financing. $4.75B
early 2011. Initial IPO discussions. $15B
mid 2011. IPO talks. $25B
late 2011. Release of earnings. $10B
late 2011. opening price $20 @IPO. $12.7B
late 2011. max market price @IPO. $25B
today. @market price. $XXXB.

Lunch Talk: Jeff Jarvis on privacy vs information tech.

tags: trend, information, social, privacy

 

Eisenstadt (a Gutenberg scholar): the book did not take on its own form until 50 years after it was invented by Gutenberg. Printing was originally called "automatic handwriting." [horseless carriage]

Creativity quote of the day.

Sacred cows make the best hamburger.

Mark Twain.

Long-term vs Short-term thinking

(c) xkcd

Lunch talk: Templin Grandin talks about thinking in pictures.

An HBO movie about Temple Grandin got 8.4 rating on IMDB.

An easy solution to a growing problem.

(November 14, 2011. Businessweek) - About 30 million Americans, or 13 percent of the population, have hearing loss in both ears, and 48 million, or 20 percent, in at least one ear, according to a study published today in the Archives of Internal Medicine. That exceeds previous estimates, which put the number of people with hearing loss at 21 million to 29 million, the researchers said.

The problem is much simpler than the situation with vision defects, especially, when children and people over 40 are concerned. Wearing glasses or contact lenses seems to be socially acceptable, while hearing aids carry a bit of a stigma. If not for the stigma, modern electronics would provide a cheap and effective solution to the hearing loss problem. It could be a good business opportunity. You can create custom audio processing algorithms, along the lines of our old invention, to compensate for the defects.
 In contrast, the growing Diabetes II epidemic is a much tougher issue to deal with, and it cannot be solved with technology alone.

tags: health, problem, solution, social

 

NBA lockout: Strict Business vs Arousal as a recipe for breakdown.

The ongoing NBA labor negotiations is a textbook study of a mismatch between emotional and business levels of perception in a high-stake conflict.

(November 14, 2011. ESPN) - From a strict business standpoint, the players' best move is to offer a counterproposal, and to be prepared to accept the league's proposal if their counterproposal is rejected.

But the players aren't operating from a strict business standpoint. They're angry. They feel that they haven't gotten a fair deal from the owners, and the only way to ensure a fair deal is to take the league to court.

Anger is a psychological state of arousal. And we know, e.g. from a 2005 research paper by Ariely and Loewenstein (DOI: 10.1002/bdm.501) that:

Efforts at self-control that involve raw willpower (Baumeister & Vohs, 2003) are likely to be ineffective in the face of the dramatic cognitive and motivational changes caused by arousal.

Most likely, the negotiations will go nowhere until negotiators' business and psych levels are aligned.

tags: psychology, business, cognition

Lunch Talk: Steven Pinker on the decline of violence.

Steven Pinker talks about his new book The Better Angels of Our Nature: Why Violence Has Declined. Among other things, he notes a modern paradox that while the humanity possesses the most destructive weapons ever, the frequency and magnitude of wars are at their historically lowest levels. 
He also discusses the decline in violence against an individual, attributing the trend to the human rights movement.

tags: trends, psychology, social

Solving dilemmas: Odysseus and the Sirens. [Separation in Time]

Last time we considered the dilemma Odysseus encounters when he approaches the island where the three Sirens live:

[Odysseus]... faces a dilemma. On one hand, he wants to listen to the Sirens' song because it is the most beautiful song in the world. On the other hand, he doesn't want to hear the song because it will cause him to forget himself and run his ship into deadly rocks.

In Homer's poem, Odysseus resolves the dilemma in space (see my earlier post). The obvious downside of his solution is that his crew did not get to hear the Sirens' song. That is, only Odysseus tied to the mast experiences it.

Another important TRIZ principle for solving dilemmas is Separation in Time. To get the best of both worlds, i.e. experience the song and not crash the ship on the rocks, everybody on the ship sails safely during the time of the song (Time 1) AND listens to the song when the ship is out of danger (Time 2.)


In other words, while they sail near the Sirens' island, all crew including Odysseus have their ears plugged so that the beautiful song does not distract them from steering the ship safely. As the result, everybody survives the encounter. But how will they hear the beautiful song of the Sirens? By listening to it later, e.g. by having the song recorded during the encounter and playing it back at the crew's convenience.

Of course, audio/video recording was not available at the Odysseus time, but it doesn't mean we should discount the possibility of applying the Separation in Time principle. After all, TiVo and other time-shifting devices are all based on this idea.

tags: triz, separation, problem, solution, example

Lunch Talk: A map of the brain.

From TED website: "As CEO of the Allen Institute for Brain Science, Allan Jones leads an ambitious project to build an open, online, interactive atlas of the human brain."

"How can we begin to understand the way the brain works? The same way we begin to understand a city: by making a map."

ARM vs Intel

(November 11, 2011. Bloomberg):

Intel (INTC) focused its efforts on what’s called the “clock speed” of CPUs, rapidly increasing the performance of computer chips to handle desktop operating systems and processor-intensive applications better. Less thought was given to reducing the power consumption requirements of these chips.

...ARM chips have used a “bottom up” [low-power] approach. Early ARM chips weren’t capable of running complex software but could run for days between charges. Once the power requirements of the silicon were effectively managed, ARM chips began to ramp up performance, most recently with quad-core chips that can offer 16 hours of high-definition playback on a tablet.

The companies' IP models are also very different. Intel develops and makes its chips, maintaining a quasi monopoly in the high-performance PC and server markets. ARM designs chips and licenses its architecture to third party manufacturers.

ARM's IP model is better suited for early stages of the product innovation process, when companies adopt trial-and-error market strategies (Synthesis?).

An IP strategy map would probably be a good idea to reflect the contrast, but I don't quite know what its dimensions should be.

tags: technology, battle, information, s-curve, product, process, mobile

Lunch Talk: a cure for procrastination.

A UC Berkeley lecture (Lecture #10, UCB Econ 119 taught by

Daniel J. Acland) on short-term vs long-term trade-off ( the math is not critical for understanding of the implications.)

Bonus: a brief discussion in the beginning of the lecture about latent problem solving.

tags: creativity, trade-off, timing

Additional References: Ted O’Donoghue and Matthew Rabin (2000). Choice and Procrastination.

A Yahoo! moment.

I'm reading a book by Steven Levy "In the Plex: How Google Thinks, Works, and Shapes Our Lives." It confirms the finding I've been teaching in my Principles class since 2005 that the main reason Google became successful as a business was the shortsightedness of Yahoo's management.

After testing Google and visiting Larry Page several times, Manber [the head of Yahoo search department] recommended that Yahoo use its technology. One concession that Yahoo gave Google turned out to be fateful: on the results page for a Yahoo search, the user would see a message noting that Google was powering the search. The page even had the Google logo. Thus Yahoo’s millions of users discovered a search destination that would become part of their lives. 

The common argument that Google won the search battle with Yahoo due to its superior search technology doesn't hold because there were no battle. Yahoo used Google as their search engine. The search results for Yahoo and Google users were practically identical. Moreover, Yahoo helped direct users to Google's search page because better search lead to higher fees.

They [Yahoo] noticed that search was better and used it more. “It increased traffic by, like, 50 percent in two months,” Manber recalls of the switch to Google. But the only comment he got from Yahoo executives was complaints that people were searching too much and they would have to pay to Google.

In other words, Yahoo willingly directed its users to Google search page because there was no business model to make money on traffic. The breakthrough model to monetize search traffic was invented by Ted Meisel of Overture Services. As a result, Google’s search technology applied to traffic generated by Yahoo and monetized through Overture’s ad auction idea made Google a dominant player on the web. In 2003, Yahoo acquired Overture and sued Google for patent infringement. In 2004, the companies settled, with Google giving Yahoo 2.7 million of its shares in return for license rights to US Patent 6,269,361, and related filings. 

Just like IBM gave away future billions in revenue when they partnered with Microsoft to write a PC operating system, Yahoo gave away its future (a Yahoo! moment) when they agreed to put Google logo on their search results. The same happened to Apple when they cooperated with Google on putting together iPhone applications (GMail, Maps, Youtube, etc.). In contrast, Facebook rejected cooperation with Google and chose its own path.

Another interesting conclusion to draw from the episode is the resiliency of  Yahoo. Despite all the dumb business decisions the company made over the years, they are still doing ok. In the automotive industry they'd be long dead or begging for a government bailout. As people say, the rising tide lifts all boats.

tags: business, google, trade-off, model, search, source