Lab Notebook: the meaning of Bitcoin

Money has been around for thousands of years. Amazingly, people keep reinventing it over and over again. Money innovation (not invention!) is always a telltale sign of a deep, underlying change in large-scale commercial systems. It serves two vitally important tasks: value exchange and information diffusion. The growing acceptance of Bitcoin sends a loud and clear message:

Dear Government, we the People, no longer trust your ability to manage our money (The Fed). We also don't trust your shameless handling of our privacy (NSA). Therefore, we are going to create an alternative mechanism for commercial transactions and sharing information about them. The new computing and communication technologies give us the power to do so. 

In the 6th century BC, Lydians developed silver and gold coinage, which made them incredibly rich and powerful. In the 21st century AD, the first respectable government that will support a new trusted currency will have a once-in-a-thousand-years chance to create an economic miracle out of, practically, nothing. I hope it will be an American government.

tags: invention, innovation, deontic, payload, problem, money, solution, growth, economics, commerce

Lunch Talk: Inventions that shook the world (1950s)

Creating new markets with semiconductor radio.

tags: lunchtalk, growth

Death by partnership with Google

In 2006, Facebook (FB) decided to partner with Microsoft (MS), rather than Google, to serve ads to its US-based users. One year later, FB and MS extended this partnership worldwide. This choice may have helped FB to become dominant in the social media market. Despite multiple attempts by Google to friend its way into Facebook's business, e.g. through social search services, Zuckerberg treated them as rivals, not partners. And for a good reason.

Two other major companies that chose to partner with Google — Yahoo and Apple — ended up loosing their market share when their partner turned into a dominant competitor. In 2000, Yahoo hired Google to provide search results for its web portal. After a couple of years, most search requests ended up on Google's site, not Yahoo's. According to comScore, Google now has 2/3 of the search market in the US.

Source: comScore, August 14 Press Release.

In 2006, Steve Jobs partnered with Google to provide email, map, and youtube video services to launch the iPhone. Several years later he found himself staring in disbelief at the growing market share of Google's Android smartphones, which now account for a staggering 81% of the total.

Source: CNet, Oct 31, 2013. Android Snags Record 81 Percent of Smartphone Market.

With Yahoo's help, Google got themselves a ticket into the web-world, including maps and email; taking ideas from Apple propelled the company into dominance in the world of mobile media services. In both cases, Google outsmarted their business partners. Just like that was the case with Microsoft partnerships in the 1980-90s, Google's highly intelligent technologists took advantage of their close proximity to huge new markets discovered by others.

Since its early days, Google has been eager to acquire ideas and startups. The original adoption of the search-relevant ad model has brought them the bulk of today's revenues. Acquisitions of startups that developed interent-based maps, docs, videos (Youtube), social navigation (Wase) etc., provide for the bulk of the company's most popular services. Due to its dominance in search, Google is in a great position to detect early user trends and buy growth before most people recognize it. Having learned from their own industry experience, Googlers would rather acquire a potential "disruptor," than give it an opportunity to become a powerful competitor. Nobody can pull off a google-style partnership on Google itself!

It's all fair (Steve Jobs famously disagreed calling Google Android "a highway robbery") and we should probably "like" the company for being a relentless innovator. What bothers me is Google's increasing emphasis on lobbying its case in Washington. This year, Google was ranked #8 lobbyist in the US, a position that no Silicon Valley company has ever tried to attain before. The Steve Jobs' generation of innovators grew out of California counterculture. They considered it to be wrong to rely on the government to advance your business case. Obviously, the times have changed. As Bloomberg reports,

Google passed two Washington power tests when it escaped an FCC probe in 2012 of improper data collection with a $25,000 fine, and the FTC dropped an antitrust probe in January. Now lobbyists for the company are working on protecting its reputation amid revelations about U.S. spying.

When the next Google antitrust probe comes up for consideration who is going to resist the high-power lobbyists? As the ancient question goes, "Who is watching the watchman?"

P.S. The lack of checks on Google should work well for their stock price.

tags: technology, innovation, business, google, facebook, system, growth, startup

Invention of the Day: DVR recording from a link on the Internet.

Yesterday, October 9, 2013, Twitter announced that it "will provide links that let pay–TV users record or view programs on Comcast's cable services." Bloomberg News reports about a Comcast executive explaining the new service,

“There are tons of conversation about live TV, but does that really lead to someone programming their DVR or picking up their remote?” Schwartz said. “This very clearly and in a measurable way links that conversation with consumption. If you’re a programmer, you monetize best if someone is watching that show live on a television set. It’s a win-win-win for Twitter, the programmers and the distributors.” 

More than 14 years ago when I worked at Philips Multimedia Center in Palo Alto, California, I invented (US Patent 6,611,654) a service that enabled users to accomplish scenarios now marketed by Twitter and Comcast. One of the scenarios covered by the patent involves a mobile user:

Alice got stuck in traffic on her way home. She is going to be late for the broadcast of a live piano concert. Fortunately, her palm-top Nino (or cell phone, or laptop) can access the TV programming network. With just a couple of clicks Alice sets her recording time-shifting device to cache the concert.

[Nino was a personal communications device developed and marketed — unsuccessfully— by Philips at the time. Tony Fadell, who later went to Apple to develop the original iPod and then created Nest, lead the effort.]

Even at that time, I could see that the Internet and mobile connectivity was going to bring new functionality to the users, including elements of social networking (because the nature of visual media is inherently social). Here's how it is described in the patent:

Alice loves talking about her favorite TV series. She watches the episodes frequently and enjoys every minute of it. In today's episode one of the characters behaves exactly as she predicted a couple of days ago. Alice needs to talk to her friend Jane about it. Jane is at work and cannot see the show. ...  One click and today's phone discussion (telecon) with Jane is going to be a real time experience.

The yesterday's announcement highlights the difference between Invention and Innovation that we emphasize in our book Scalable Innovation.

Source: Shteyn & Shtein, 2013. Figure P3.

Although we were able to make a first step toward innovation in 1999, e.g. by creating a prototype (first red dot on the chart), the innovation has become scalable when the connectivity infrastructure became ubiquitous. Today, phones, TVs, DVRs, thermostats, watches, and other devices are connected to the network and can be accessed by consumers in many contexts — personal, social, and business. As we show in the book, scalable innovation creates its own space. Right now, we enter a new phase (Chapters 15) when the entire system "flips" to accommodate connected devices; adding them to the network has become a "no-brainer."

Alan Kay once said, "The best way to predict the future is to invent it." I'm happy I was involved in inventing the right future.

Dominant design.

MTR has a good illustration for the state of mobile devices

It's also a good indicator of growth in the industry.

Lunch Talk: (@Yale) History of the Mortgage Market

Professor Geanakoplos describes securitization and trenching of mortgage pools, the role of investment banks and hedge funds, and the evolution of the prime and subprime mortgage markets. He also discusses agent based models of prepayments in the mortgage market.

00:00 - Chapter 1. Fannie Mae, Freddie Mac, and the Mortgage Securities Market
17:01 - Chapter 2. Collateralized Mortgage Obligations
22:44 - Chapter 3. Modeling Prepayment Tendencies at Kidder Peabody
35:40 - Chapter 4. The Rise of Ellington Capital Management and the Role of Hedge Funds
52:52 - Chapter 5. The Leverage Cycle and the Subprime Mortgage Market
01:13:51 - Chapter 6. The Credit Default Swap
01:18:36 - Chapter 7. Conclusion


tags: lunchtalk, innovation, invention, finance, risk, growth

Singapore job satisfaction one of the highest in Asia.

According to Gallup, workers in Singapore have the highest job satisfaction compared to their peers in industrial Asian economies. The Chinese have the lowest.

 

tags: demographics, economy, growth

Same technology, different S-curves, different results.

Using solar power in areas where there's no power grid, e.g. in Asia and Africa, looks a lot more promising and cost-effective than introducing the same solar power technology in mature energy systems in the US or Europe.

(MIT Tech Review, June 8, 2012). Diesel is a major source of power in south Asia and Africa, where many areas lack access to the grid and frequent blackouts prompt those who can afford it to install backup generators. These markets could help a solar industry that’s struggling with low profit margins due to an oversupply of panels. In turn, the lower prices for solar power could speed up deployment in poor countries by providing a more economical alternative to diesel-powered pumps and generators, and a much faster path to electrification than waiting for grid infrastructure.

One of the first economical applications for solar is replacing diesel-powered irrigation pumps, Gopalan says. These pumps don’t have to run at night, so batteries aren’t needed, keeping costs down. “The total available market in India alone is 15 to 20 gigawatts, and irrigation pumping is a massive application in all of Asia and Africa,” he says. For perspective, the current total installed capacity for solar power is 65 gigawatts, according to the management consulting firm McKinsey.

In Asia and Africa, introduction of the technology does not depend on infrastructure investment. Furthermore, as recent power outages in the US show, the bottleneck in the energy system is not power generation, but power distribution.  Also, Germany's introduction of "green" energy involves massive investment into new distribution lines. As a result, adoption of the same technology in different areas produces dramatically different economic outcomes.

This difference is obvious to me on the personal level as well. Every day I walk my dog by our local high school. Two years ago it used a government subsidy and a local bond to install solar panels to cover its parking lot. Paradoxically, during the summer months when the largest amount of solar power is generated, the school is not in session. Therefore, the power cannot be used locally and has to be distributed through the grid - with losses - to remote users. In other words, there's a fundamental mismatch between the power generation and the power use patterns.

In contrast, the MIT article cited above talks about a solar panel installation in Asia that feeds irrigation pumps. Because the pumps have to work the hardest when there's a lot of sunshine, solar-based power generation and power consumption by the pumps are almost perfectly synchronized. Therefore, there's no need to store or distribute the power - with inevitable losses - to other users.

As we can see, economic efficiency of the same technology is quite different in these two cases. Here in California, we face a trade-off: the "greener" the energy, the more expensive it is. Opposite to that, in Asia the trade-off is broken: the "greener" the energy, the cheaper it is. Clearly, the technology's upside is much greater there.

tags: s-curve, synthesis, growth, distribution, infrastructure, niche construction, 4q diagram, market

LunchTalk: Dr. Regina Dugan, DARPA Cyber Colloquium

During the Colloquium, more than 700 cyber experts from industry, academia and the hacker community learned how since 2009, DARPA has been steadily increasing its cyber research. Its budget submission for fiscal year 2012 increased cyber research funding by $88M. Over the next five years, the Agency's proposed cyber research investment expects to grow from 8 to 12 percent of its top line. These investments are shifting to activities that promise more convergence with the threat and recognize the unique needs of DoD. Dugan explained, "in the coming years DARPA will focus an increasing portion of its cyber research on the investigation of offensive capabilities to address military-specific needs."

link

- More video is uploaded in 60 days that's been created in 60 years by 3 major US TV networks combined.
- 29 chemical companies were subjects of computer attacks to extract data on formulas and manufacturing processes.
- in 2004 proceeds from cyber crime exceeded proceeds from selling drugs.

tags: lunchtalk, quote, security, growth,s-curve

Lunch Talk: (@TED) What we can learn from spaghetti sauce

Tipping Point author Malcolm Gladwell gets inside the food industry's pursuit of the perfect spaghetti sauce -- and makes a larger argument about the nature of choice and happiness.

tags: lunchtalk, innovation, creativity, growth

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

The latest in the evolution of impulse buying.

WSJ reports on a new trend in grocery retailing: placing expensive packaged food near fresh healthy produce.

...stores are finding that consumers consider even packaged foods placed there [near fresh fruits and vegetables] to be fresher and higher quality—researchers call this a "halo effect."

Humans, like monkeys, are drawn to sweet bananas (yellow is a very tasty color). P.8 on the graphic says: Grocers place bananas toward the back to lure shoppers through the section. If I remember correctly, Trader Joe's has the layout closest to the one shown on the picture.

Brick and mortar stores are in a tough spot because shoppers, changed by internet shopping habits, know exactly what they want. Even women in electronics stores become less of impulse buyers.

Oct. 17 (Bloomberg). Women now go into a store, hoping to go right to what they need like a man would,” said Delia Passi, CEO of Hollywood, Florida-based Medelia Inc., which advises companies such as Home Depot Inc. on how to appeal to female shoppers.

Impulse purchases require people to browse the aisles, however, and that’s happening less and less these days because Web-savvy consumers often already know what they plan to buy and simply pick it up and leave, said Bill Martin, the chief executive officer of ShopperTrak.

These mission shoppers visit fewer stores -- three per trip, down from five pre-recession .

From a system evolution perspective, we see a transition from one S-curve to the next one. The old S-curve (brick and mortar retail) invented about hundred years ago is in the efficiency stage, where they have to squeeze out every penny from a limited set of value scenarios. Further, they've got a fixed setup and lack the ability to customize shopping experience for a particular shopper or a demographic, as web retailers do. All product browsing and impulse shopping moved to Internet retailing, which is in the growth stage of a new S-curve. Proliferation of connected tablets and 4G networks will further speed up the transition process.

tags:  10X, system, s-curve, efficiency, growth, business, model

Beyond the Web.

Infrastructure build-up is a precursor to a major technological expansion. The construction of the cloud and proliferation of high-performance networking shows that we are moving beyond the web, as it was envisioned by Tim Berners-Lee. (Also of note is the gradual abandonment of WiFi, a PC-based wide area networking technology).

Wired:

Google has begun building its free high-speed network, which promises speeds of 1 gigabit per second for both downloads and uploads using fiber-optic lines to the home. "We believe the uplink capacity is the real game-changer here," Lo said. "We're going to light up our customers in the first half of next year."

Wireless

Sprint's 4G LTE network would give the carrier a network on par with Verizon's, supplying the nation's third-largest carrier with an additional selling point beyond attractive pricing plans and an unlimited data offering. By employing LTE technology, it will be able to tap into a larger pool of vendors already racing to build 4G devices and equipment at a lower price. The additional network will also allow Sprint to offload some of its 3G data traffic onto 4G, relieving a growing burden.

Underground

The New York Metropolitan Transit Authority turned on wireless service in four subway stations in Manhattan Tuesday, marking the first time a straphanger could reliably use their cellphone while waiting for their train.

...the same capabilities have been available in other cities including San Francisco and Boston.

tags: infrastructure, distribution, s-curve, system, growth, mobile, evolution

Internet weather forecast: cloudy, with lots of smartphones.

Transition to Internet cloud is becoming unstoppable. One of the strongest indications of impending massive growth is concerted industry efforts to standardize a new technology. By standardizing, market players try to turn a unique technical solution into a commodity so that they can ship boatloads of cheap substitutes as well as complimentary products.

Today, the Open Virtualization Alliance, a standards consortium of companies focused on server-side virtualization, announced new membership numbers - 200 from 65 three month ago. According to CNet, the key issues they are trying to address:

• Economics--VMware [the dominant virtualization vendor] currently controls pricing. Having a credible choice gives customers an ability to negotiate with their vendors. An open alternative gives more leverage.
•  ...They [VMWare] are also seeing customers moving from testing private clouds to starting to deploy automated, standardized infrastructure at scale.

Even if the consortium does not succeed for a while - standards always take time - the standardization effort itself shows that:
a) the technology works and many people know how to produce it;
b) the technology scales, i.e. it can be deployed in a large number of instances;
c) the need to scale the technology is real.

In addition to that, Microsoft announced that Windows 8, its next generation OS will be more virtualization friendly than Windows 7, and [separately] the company is in discussions with Comcast and Verizon to enable video streaming to XBox. Again, the intent is to make the cloud cheap and scalable.

tags: cloud, system, s-curve, infrastructure, information, computing, 10X, growth, source, microsoft, internet

@ $730K per patent, Google buys Motorola.

Whatever the business wisdom behind buying one of the worst mobile handset manufacturers in the world, Google's acquisition of Motorola is great for patents. Assuming, generously, the value of Motorola hardware division is $0, Google paid about $730K per patent in the deal. On the per patent basis, this is 50% more, than in the Nortel auction won by Apple, Microsoft, and others. Now Google will have a free hand at ripping off Apple design and business strategies, hiring Apple's designers, and so on. Add to it Google's cloud capabilities, with Youtube, Docs, gaming, etc., and you get a very strong challenger, both in the consumer and enterprise segments. It might be a bit too early to sell Apple stock short, but the competition in the mobile world has be come a lot less lopsided. Unless, of course, Google suffers from the Not Invented Here syndrome, and tries to create its own brand of smartphones.

From an innovation theory perspective, this event is also significant because it confirms that Open Innovation does not have a working IP model, except costly patent acquisitions. Free software and open technology is great, as long as it does not involve a major commercial success.

tags: innovation, patents, growth, software, business, model, mobile, control, battle, theory

Trade-off of the Day: Ease of access vs Security.

From MIT Tech Review:

Employees using such gadgets to connect remotely to company servers and e-mail accounts can boost efficiency; but the practice also creates security challenges. Companies will have to learn how to overcome those challenges for the distributed office of the future to succeed.

Breaking this trade-off will enable the next wave of internet (for the lack of a better word) innovation. tags: mobile, internet, control, trade-off, information, cloud, breakthrough, growth

2015 Traffic Report: million minutes of video per second.

Source: Mashable

Growth rates in Latin America look particularly impressive.

tags: video, distribution, infrastructure, tool, system, growth, information

From China with patents.

NYT reports on China's ambitions in technological creativity:

In 2009, about 300,000 applications for utility patents were filed in China, roughly equal to its total of invention patents, which have been growing slightly faster than utility filings in recent years. But even if just half of China’s total filings in 2015 are for invention patents, the national plan calls for a huge leap, to one million, by 2015. By contrast, patent filings in the United States totaled slightly more than 480,000 in the 12 months ended in September, according to the patent office.

China’s patent surge has been evident for years. In October, Thomson Reuters issued a research report, forecasting that China would surpass the United States in patent filings in 2011. “It’s happening even faster than we expected,” said Bob Stembridge, an intellectual-property analyst at Thomson Reuters.

Here's a link to an English translation of the original Chinese Government's IP development strategy document.

It looks like they are going for quantity, which is not necessarily a bad idea during a period of rapid growth.

tags: patent, china, strategy, innovation, invention, growth

The Survival of the Luckiest.

It looks like Intel's grip on the semiconductor industry is being disrupted by ARM. Not because ARM did something extraordinary clever, but because the world shifted to applications that care a lot more about electric power consumption than computing power. In biology this is called preadaptation.

Driven by the success of the iPad and iPhone, Apple is expected to pass Samsung as the world's No. 2 chip buyer in 2011, second only to Hewlett-Packard, according to market researcher iSuppli.

The firm is projecting that Apple's semiconductor spending in 2011 will hit $16.2 billion, surpassing Samsung Electronics, which is forecast to be at about $13.9 billion. HP will stay in the No. 1 position with $17.1 billion in spending, iSuppli said.

"This is a an indication of where the technology is moving," said Min-Sun Moon in a phone interview. "Apple is contributing to the trend of moving away from Microsoft-Intel to ARM-based systems," she said.

One of the more interesting aspects of this transition would be the abandonment of legacy applications. Especially, those that were written for the WYSIWYG environment tied to sharing/exchanging information via printed documents.

$400K per green job

Last week, Business Week published an article by former CEO of Intel, Andy Grove, where he, among other things, pointed out that now it takes tons and tons of money to create jobs in America. The chart below shows that in 2010 dollars high-tech job creation costs went from about $2K in the 1950s to $100K in the 2000s.

Andy Grove thought it was a gruesome trend that spelled doom for American workers. He said that unless we learned how to create jobs more efficiently, the gap between the haves and have-nots is going to grow. Pretty bad, isn't it.

But just three days later, real life events exceeded his gloomy forecast:

"President Barack Obama, under pressure to spur job growth, said on Saturday two solar energy companies will get nearly $2 billion in U.S. loan guarantees to create as many as 5,000 green jobs."

It's $400K per job! Four times greater than the current already absurdly high level. This looks like the disruption pattern described in The Innovator's Dilemma, by Clayton Christensen. That is, we keep "producing" more and more expensive jobs (products/services), while our growth model is being disrupted by China and other formerly 3rd world countries.

tags: innovation, problem, trend, energy, infrastructure, disruption, economy, growth