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Coins to QQ at Web 2.0
With the backdrop of tumultuous financial markets, I did a presentation on a history of currency at Web 2 Expo in New York (In the interest of full disclosure, I should probably also mention that I was on the advisory board for the conference). None of the fundamentals I highlight in this will change as [...]

With the backdrop of tumultuous financial markets, I did a presentation on a history of currency at Web 2 Expo in New York (In the interest of full disclosure, I should probably also mention that I was on the advisory board for the conference). None of the fundamentals I highlight in this will change as a result of the recent events in the US financial markets because most of the new drivers I highlight are emerging outside of the US and will probably have their first impact outside of the US too. With that said, I wanted to continue the discussion and expand on it with the readership of TNL.net and other people who may not have been able to make it to the presentation. I look forward to any comments.

So without further ado, here are my prepared remarks:

Good afternoon,

I know many of you are probably wondering why a history of currency would be on the program at a Web 2.0 conference. So let me first dispel a few concerns you may have:

1.    History can be a useful indicator of what may happen in the future. Under a historical lens, Web 2.0 is pretty easy to predict as the natural descendent of community organizing and lowered cost of communication and mediation.
2.    Web 2.0 will impact currencies and that will probably be the biggest thing historians of the future may remember about Web 2.0

So, in the next few minutes, I’m going to take you on a trip through roughly 60 centuries of history (just the highlights, I promise) and will show you how each major shift in the evolution of currency reflects what we consider pillars of the Web 2.0.

Having done so, I will attempt to take you through the next 25 years and project how Web 2.0 may fundamentally redefine how we think of currency, and present some of the challenges and opportunities this historical change may present.

So here we go…

About 4000-5000 BC, the basis of most trading was something called barter. Barter is simple to understand, really. At its most basic level, it goes something like this: “I have fish and you have some chickens. How many chickens will you trade me for my fish?”

The other guys says he will give me 5 chickens for my 10 fish and, if I feel it’s a fair trade, we make the exchange.

So that’s all good but one can’t live off fish and chicken alone. And eventually, I go back to the guy and he tells me he’s not interested in fish but if I can find a cow to sell him, he’d be willing to exchange 50 chickens for it. So now, I’m out looking for someone who will give me a cow in exchange of some fish.

That may work for a couple of goods but you can see how inefficient an approach it is.

Back then, people started realizing the same thing and so there was a move to find some way to simplify things. Communities started gathering around some goods that they would agree were useful as a basis for trade: grain, honey, rice, etc…

And, through these actions, the concept of money was born… and with it, the basis for what defines a currency was established:
-    It provides a standard measure of value for goods and services
-    It serves as a medium of exchange
-    It serves as a method of storing value

Let me get into those points in more details before we move on.

A currency provides a standard measure of value for good and services. If I go back to my example of chickens and fish, I can look at currency as a go-between. By establishing that a fish is worth 1 pound of grain and a chicken is worth 5 pounds of grain, I can then extend the model to a cow is worth 100 pounds of grain and a house is worth 1 ton of grain. From this data, I can infer that a house is worth more than a cow, which is worth more than a chicken and so on…

However, none of this can happen if there isn’t an agreement amongst everyone that a particular currency has value. You could call that a certain wisdom of the crowds and that’s where currency starts overlapping with web 2.0. We’re going to get to more details about that later.

The second point is that a currency serves as a medium of exchange. Because everyone agrees that grain is a great way to make those comparisons, I don’t have to go around and try to make conversions from one item to another. I trade the item against grain and then can use the grain to “buy” something else. In that sense, I can exchange any good for grain and grain can be exchanged against any other goods.

Once again, this only works if people agree on it as a medium of exchange. And that, in turn, represents a form of metadata about a trade. Sort of like if people were to tag an item with the same term. And once again, we get to a position where it overlaps web 2.0 as the crowd is now working together to establish value and therefore define markets.

And because currency is metadata, it can also serve as a way to store value for future use. For example, if I fish, there’s only so long I can keep my fish before it spoils. By selling it immediately (ie. Trading it for its currency equivalent), I can avoid that spoilage and store its value for future use. So, in a sense, currency serves as a storage medium.

But the fact that it works as a storage medium can be both an advantage and a disadvantage. As storage for value, the currency itself become valuable. And when something is valuable, well, some people try to acquire it through means other than production. From here, we end up with theft, pillage, war, etc… And from all this carnage, we get to the point where people try to find ways to protect their currency (and, almost as often, their lives).

In around 3000 BC, in ancient Egypt, some people come to the insight that, by storing their currency together and agreeing to share the cost for an army to protect that currency (which, at the time, is grain), they may be protecting themselves from loss. Along the banks of the Nile, granaries start to appear and they become a place for storing currency: people come in with the grain they received as a form of payment for whatever it is that they sold. And the first accountants appear, keeping track of what amount of currency people have in their accounts.

Everybody is happy and celebrates as they have discovered a fantastic way to store their currency and keep people from threatening them. Across Egypt, people pat each others on the back until… well, until the first currency crisis.

Around 2200 BC, severe drought made grain more scarce. The result was that disbursements (taking grain out) started to move at a higher rates than deposits (putting grain in). And some people found themselves in a situation where they had spent all the grain they had and had a hard time producing anything they could sell. In this case, the value of the currency (grain) increased because the currency became more scarce.

Eventually, the problem affected the top of the economic food chain, aka. The pharaoh and, as a result, local people started opting out of pharaoh rule and attempting to take control of their own currency. When all was said and done, about 200 to 300 years later, grain was abandoned as a currency as it was considered that a currency that can be eaten is a currency that can have a problem. So metals, which could be turned into tools, which themselves could be melted again to turn them back to metals, started emerging as the dominant form of currency.

This is important because it finally moves currency to something that is more abstract. Metal may be a commodity that, without any work, could be considered of little value but, as an abstract construct of value, it works. And for the next few centuries, that’s the case.

Some interesting alterations in terms of the ways money is stored and carried happen during that era. For example, in a number of countries like China and Sweden initially, people realize that metal may not be the most portable of currency for large transaction and so places where currency is stored (now called banks, because, initially they were sitting on river banks) start issuing the equivalent of paper receipt for storage and people start trading those receipt. Here, we see the emergence of two key components of a more modern system:
-    First, the concept of representative money, where a piece of paper can be redeemed for a certain amount of metal, therefore representing that metal.
-    Second, the emergence of paper as money, creating another layer of abstraction in the transactions.

With the move to paper, currency becomes sort of an I.O.U., representing a certain value but not possessed of that value in itself. This shift, called the shift to representative currency, is important because it establishes currency as an even more abstract concept. The piece of paper you receive is basically a receipt that can be redeemed for some equivalent amount of metal but it isn’t the metal in itself. So here, we see currency basically becoming free-floating metadata, asserting worth without necessarily showing it.

The problem is that the distance from a bank where the paper note can be redeemed becomes a factor in terms of exchanging the banknote.

Enter John Law.

Law is an interesting character: he’s a Scottish economist who, at age 23, shoots a man, is tried and found guilty of murder. He’s thrown in jail, manages to escape and lands in France. While there, he gambles a lot and comes upon two major observations:
-    People have taken to trading the paper bills as if they were coins
-    Paper is divorced from the metal it represents

From there, he deducts that whoever could control the flow of paper bills could start issuing more IOUs than they have metal for.

With this, he comes up with the concept of a reserve bank, assuming that he could have a bank with only 75 of the cash reserve needed to cover the IOUs it had issued. But there’s a problem with that: in order to control the flow of paper bills, he needs support from a government. And initially, most people think it’s a crazy idea and won’t go for it. But Law convinces some more junior people that it’s a good idea and, eventually, one of his patrons hits the jackpot: Philip D’Orleans rises to power and quickly realizes that he’s running a country where the government has a substantial deficit. So he puts Law in charge of creating a national bank and law sets out to create the first government controlled reserve bank, issuing more paper than it has metal currency for.

It’s a pretty radical idea. Law is dealing with a society where everyone agrees that what you see is what you get as far as currency goes but then he leverages the agreement that paper is a representation of what you get and, after having taken over control of the currency flow, he turns that into what you see is what you get if no one rushes the bank.

Because with his second insight, John Law creates the concept of fractional reserve banking, which basically means that the bank, at any given time, only holds a fraction of its obligation.

But fractional reserves can be a little scary: they work well as long as people trust that the bank can repay them. And most of the time that’s not an issue because while a person needs to pick up their gold or silver or whatever other metal the currency is traded against, another person probably doesn’t need his or hers. So it balances itself out in some sort of common good.

Where the system can fail is when everyone decides to take their metal out at the same time: remember, the bank doesn’t have enough metal in its safe to cover all the currency it’s distributed. That problem is actually an echo chamber problem.

A run on a bank, the situation I’m talking about, generally begins with a whisper: somebody has heard that the bank is having problem and concludes that money you’ve deposited there is no longer safe. That whisper starts spreading and, thanks to an echo chamber type of effect, people worry that their money is no longer safe in this bank. Since they don’t want to lose that money, they run to the bank and withdraw all their money from the bank. Problem is, they are not alone and quickly tens of thousands or more people start doing the same. Because of that massive onslaught, the bank no longer can meet its financial obligation and actually does fail.

This happened in the 1920s with the great depression and it’s happening now (that’s why the government is busy bailing out a number of financial institutions.

But let’s return to history. In the 1940s, after World War II, the Bretton Woods accord established some global rules for currency exchange against gold. But most of the reconstruction of Europe ended up being backed by US dollars to the point where the US held somewhere around 65 percent of the global gold reserves. In 1960, an economist called Robert Triffin figured out a problem with what had happened: there were more dollars in the marketplace than there was gold to back it up. In the early 60s, an ounce of gold was worth about four to five dollars more in London than it was in New York.

Due to many political and economic events throughout the 60s, the possibility of a run on gold and a run on the dollar started increasing and on March 17, 1968, the possibility became reality, creating a substantial money crisis. The whole financial system teetered on the edge of collapse during that era and eventually, the Bretton Woods accord was abandoned. On August 15, 1971, US president Richard Nixon announced that the US would no longer convert dollars to gold. In fact, he added the US would not convert dollars to anything.

That announcement is appropriately called the “Nixon Shock” because with it, Nixon puts an end to the concept of a representative currency established by John Law. In its place is now the concept of a Fiat currency, a currency that is traded not because it has a guaranteed value but because the government says that this currency MUST be accepted as a form of payment.

And so currencies now float, not based on a physical value but based on what people think that value ought to be: today, dollars, euros, pounds, and yens have a particular value not because it is set against actual goods but because people believe that the government that backs those currencies will continue to do so in the future.

So let’s go back to our fundamentals of currencies: they have to be an agreement and that’s where we get to web 2.0 and its impact on currency.

Which gets us to more recent times. During web 1.0, a number of companies starting thinking that the internet, because it was global in nature, needed a global type of currency. So technologies like Digicash, Cybercash, Ecash, Flooz, Beenz, appeared in an attempt to mirror cash and create new currencies.

But they had many problems. First of all, the different systems were hard to use, often requiring software to be installed on the users’ machine. That limited participation and, if you remember one of the fundamental rules of currency creation is that users generally agree on using a common currency.
The second part was that the systems actually went too far in trying to emulate cash. So, just as you need to go to an ATM to get cash today, most of the system used the concept of a purse that was to be refilled from a different area. But why go to an ATM to withdraw cash when you’re on the Internet? Why not say, “I have money in my account, refill my wallet if it’s empty. ”

The third, and probably most important part, was that once spent, the currencies were transferred back into some real world currencies like the dollar or pound sterling (and no euros because this is all happening before the euro became a consumer currency.) That was the biggest mistake because currencies weren’t really traded.

The dotcom bubble crashed and, along with it, most of the virtual currencies that had been introduced. It wasn’t a very big deal because people didn’t hold much money in those currencies.

Meanwhile, a parallel development having absolutely nothing to do with currency creation took form across the internet: because of its global outreach, the net was a perfect place for people to play games together. At any given time of day or night, there was always someone interested in a game of chess or backgammon or something else. Some games went beyond the basic board games and leveraged the concept of role playing games that had been so attractive to so many computer geeks.

And over the years, as computers became more powerful, the quality of the graphics improved. And as the games improved, new point systems were created for each quest allowing to trade work (game-related achievements) for goods (better weapons, magic potions, housing, etc..)

Those points took various forms. So games like World of Warcraft or Lord of the Rings online, which are set in a medieval-like type of environment, turned to gold as their achievement point systems. Linden Lab, with created Second Life, created the Linden Dollar… and so on and so forth.

But then… then something really unexpected by most of the game makers happened: people started exchanging those virtual currencies for real world ones. Looking back now, it seems to make total sense: the challenge, for a lot of those games, is that it takes a lot of time to acquire virtual currency.

Here, in the developed world, time tends to be at a premium. Most of us are multitasking constantly because we just don’t have enough time to do everything that we would like to. But because we spend a lot of time working or doing other things, we don’t have much time to play games. On the other hand, we tend to have more disposable income than people in underdeveloped countries.

For example, in 2005, the average annual salary (and let me make this clear, I’m talking average annual salary) for a Vietnamese worker was 1200 dollars. That’s 1200 dollars a year. That same year, in the Guangdong province of China, that number was $2,778.

Some of those people are in their early 20s and when they get out of work, they go out and spend some of their money to play video games. At some point, a few entrepreneurs around southeast Asia realized that if they paid ANYTHING to those players, they might be able to get past some of the more boring tasks and resell the accounts to people with little free time. A new economic model was born and all of a sudden, World of Warcraft gold started getting traded against US dollars and euros.

Students of currency history could have predicted this. Remember, currency is a social agreement on the value of something and here, those virtual currencies became an agreement on a value of time.

While initially the phenomenon was one of supply arising from southeast Asia to meet North American and European demand, it eventually went around full circle. When China decided to start requiring that people register their work occupation as “virtual workers” for people dealing with that type of trade, over 750,000 people applied in the first quarter. That’s three quarters of a million people in China alone claiming to make the majority of their living from creating goods they sell against virtual money.

And Asia is where it actually gets very interesting because frictions between the government and virtual currencies are becoming more common.

Meet Tencent. Cute little penguin, right? Well, that little penguin is currently at war with the Chinese government. It started relatively innocuously. Tencent provides an IM system and offered a virtual currency, the QQcoin, to be used so one could upgrade their online avatar (an avatar is basically what your online character looks like) and allow for people to give gifts to other avatars. Not a big problem until a few other web sites started accepted QQcoins as payment for services, and eventually for goods. In May 2007, the Chinese authorities started issuing warnings about the QQcoin. By November 2007, they were blaming it for impacting the Yuan, the national currency.

That industry, which people have called the virtual world economy, real money trade, or RMT, currently represents anywhere between 2 and 4 billion US dollars of transaction flow a year. That’s up from inexistent less than 5 years ago.

So let’s keep that number in our minds and move to the next set of influences Web 2.0 is having on currency. As you know, Web 2.0 in increasingly about giving power to the user and increasing peer to peer relationships.

I talked earlier about the virtual currencies that popped up during the web 1.0 phase. There was one company which, at that time, came up with the idea of moving currency from one Palm device to another. For those of you in the audience who may not remember that time, Palm devices where the spiritual grandfathers of the iphone or most smartphones today. Well, the Palm thing didn’t work out for them, so they figured they’d start moving money via email. Oh, and they renamed the company around the name of the product: Paypal.

I think everyone here knows the rest of the story. Paypal has become a leader in moving money on a person to person basis with something as simple as an email address in terms of identification. That simplified transactions and many people around the world are actually using paypal today to move money from one currency to another.

And while many may snicker at the idea that moving money from something as ridiculous as the Palm, well, it was just a question of timing and marketplace. Currently, in Kenya, M-PESA is doing the equivalent of 10 million US dollars in daily person to person transaction on mobile.phones. That 3.6 billion dollars a year.

That’s real currency right now but why does it have to be a real one? After all, it’s just virtual money as it moves from an electronic device to another.

Meanwhile, marketplaces like prosper.com and zopa have started allow users to make loans to each other via a web interface. It’s called peer-to-peer lending, basically, people lending money to other people, or as most of those companies claim, they’re Ebay for money.

According to the online banking report, it will be a US$9 billion a year business by 2017.

That’s real currency right now but why does it have to be a real one? After all, it’s just virtual money as it moves from an electronic device to another.

So if we take the trends we’ve just explored:
1.    Virtual currencies have grown to be traded as if they were real currencies
2.    People are moving money from one person to another via the internet or mobile devices

… we may be able to come up with the conclusion that where this is going, in the long run, is an area where exchanges could be set up either online or on mobile devices to use virtual currencies are real currencies.

And if we assume that this first step is possible, then it’s not too far away from the next step, which is an explosion in the number of currency offerings we may see in this world.

What we’re seeing here is the first shot in what I think is the next evolutionary step in the history of currency and it’s an evolution that could either be a transitional phase without major disruption or a massive change in the way people are interfacing with currency: this could be our generation’s Nixon Shock.

The issues around this new world are significant.

The first issue is around who is controlling those currencies. For most of history, currency was under the control of the currency issuer. But in the last couple of centuries, there’s been an increasing trend towards government control of currency.

How will government react when their own currency is challenged? And will their reaction matter? After all, the Chinese governments actions to date, as far as the QQ is concerned haven’t stopped trading.

What will happen in terms of tax collections? Will government have to start accepting currencies beyond their own as agreed form of payments? And if they accept other forms of currency, will they have to accept other government-run currencies as form of payment?

How will criminal behavior be dealt with? Today, criminal elements can be tracked because whenever they have to deal with some currencies, they have to eventually deal with banks. And because banks are regulated, criminal behavior can be intercepted. What happens when those money flows move outside of the financial institution control? Shouldn’t governments think about regulating those institutions as money transfer operations ?

What happens when the number of currency explodes? Sure, computer systems can do the conversion without problems but how will WE assess the worth of a currency?

And, as currency initially proliferate, there will eventually be a move towards an agreed upon set of new currencies because remember that currency is ultimately, about an agreement value by all of us. But when some of those currencies die, what will happen to the people holding them? Will the dead currencies be converted to emergent ones? And what happens if the dead currencies are ones that were controlled by governments? Will they fight for survival?

I unfortunately don’t have any of the answer to those questions but if there is one thing I know, it is that where questions exist, opportunities abound.

And with that said, I would now like to open up the floor for discussion.

Going to Web 2.0 Expo?
I’m wondering how many TNL.net readers are coming to Web 2.0 Expo in New York. If you plan on attending, I’d like to first thank you for doing so (full disclosure: I’m on the board of advisors for the conference) and hope that you will attend my session on a history of currency on Friday, [...]

I’m wondering how many TNL.net readers are coming to Web 2.0 Expo in New York. If you plan on attending, I’d like to first thank you for doing so (full disclosure: I’m on the board of advisors for the conference) and hope that you will attend my session on a history of currency on Friday, September 19th, at 12:05pm.

Also, if you’re going to be there that week, drop me a note either by email or in the comments. If there are enough people, I’m thinking of organizing either a breakfast, lunch, or dinner get-together for TNL.net readers.

American Me
Yesterday morning, I entered a room filled with foreigners. By the time I left, there were 240 new American citizens, myself included. My journey to this moment is one that, in retrospect, would pretty much a given. Since 1992, I’ve been involved on the outer periphery of presidential elections. In the mid-1990s, for a brief period, [...]

Yesterday morning, I entered a room filled with foreigners. By the time I left, there were 240 new American citizens, myself included.

My journey to this moment is one that, in retrospect, would pretty much a given. Since 1992, I’ve been involved on the outer periphery of presidential elections. In the mid-1990s, for a brief period, I was even lucky enough to be present when policies and legal precedents that continue to shape the Internet were established.

In the last presidential election, I took a week off from work to put my money where my mouth was, volunteering with the A.C.L.U. to help protect individual citizens’ right to free assembly and free speech during the New York Republican convention. I’ve had many memories from that week but what stuck most, in my mind, was the courageous group of three Republicans who, one night during that week, went down to Union Square, where most people were protesting against the GOP, and set up individual spot asking the protesters to debate them. The exchanges were both fiercely partisan and cordial and I am still amazed by the fact that people who sat on opposite extremes of the political spectrum could not only sit down and talk with each other but do so in a manner that may have helped all participants.

And yet the time passed and it took me another few years to even apply for American citizenship. But last year, I finally decided to make the leap. And the leap was made on one small but crucial and all to often taken for granted right: the right to vote.

I have not posted any partisan thoughts on this site when it comes to American politics. It was a conscious decision: back then I was a resident alien (yes, that’s the technical term) and I felt that to use this bully pulpit to discuss American politics would be in bad taste. As a non-citizen, I felt that I had little or no right to really voice my opinion as loudly because I considered it to be in bad taste.

But things started bugging me. It’s not that I was starting to dislike America but rather that I started to dislike how the administration was dismantling the idea of America that has been set down by the founding fathers. People who know me well know that I can be a bit obsessive about the US constitution and the bill of right. And what I felt, after a few more years of the Bush era, was that this administration was going against a substantial amount of what the founding fathers intended.

A worse crime than attacking the foundation of the American republic though, was in the way it was done, attempting through twisted logic, to paint that attack as in line with what the founding fathers intended. To besmirch their names in such a way was, I think one of the final straw.

The people who assembled in Philadelphia in 1776 and declared that enough was enough put their necks on the line for us with the declaration of independence. And the people who, 11 years later, came up with the US constitution did the improbable: they decided that, having defeated the mightiest army of the time, they would not accumulate and aggregate the power amongst themselves but rather, they would form a country where checks and balances would rule the day to ensure that the people had the strongest voice possible.

So the states would act as a check on federal powers; 3 branches of government would balance each other out to ensure that none became too strong; even those would be balanced as internal mechanisms would limit the authority of any single person within that branch.

George Washington, who had initially had a hard time prosecuting the war but eventually turned things around to win a country was given a chance at becoming the country’s new king. But not only did he turn down that opportunity, he did not seem to argue for a strong executive branch. Once in power, he not only avoided the trappings of royalty, but also set foreign policy precedents by declaring the US as a neutral nation in foreign conflicts, and eschewed any attempts at war, preferring peace.

Alexander Hamilton believed that the country’s burden ought to be shared by all. However, while heading the house of representative, he decided to sway votes to ensure that his political opponent (and a fierce advocate against that idea), Thomas Jefferson, could become president because he felt that doing otherwise would undermine the legitimacy of the country.

Thomas Jefferson, a slave owner, decided to deride the practice of slavery in his initial draft of the declaration of independence and time and time again, pushed for laws that ended up dismantling some of his own interests.

The men intended on building a new country based on equality and justice for all, even if that meant that they would no longer be guaranteed worship but instead would be considered equals to all. And for this, I would say that they were not just mere men, they were supermen.

But somewhere, somehow, things started going horribly wrong in our times. And I suspect that the main issue has been one based on economics, with many people believing that the golden rule (”he who’s got the gold makes the rule”) should be the basis for our nation. That golden rule led to a belief that each American is an individual and, as such, has little or no responsibility to the rest of society. It elevated the individual to a place where kings would be OK, and thus, the belief of a strong president, stronger than congress or the courts, started to take hold.

And so, a new era of selfishness replaced the basis of selflessness that our founding fathers intended.

I could recount the ways in which those things can be illustrated by the actions of this administration. Whether it is a rush to war (and here, I do not talk about Afghanistan, a war that was based on facts and a real enemy but rather about Iraq, a war that was “sold” because it appealed to a certain group) or the belief that corporations can be above the law (for example, the telecom prosecution exemptions currently being discussed which, I’m sure, are leaving every criminal trying to figure out how they can present their trade in a way that will make them benefit from the same approach large telcos do), something went amiss.

But things going amiss are not the reason to become citizen of a country like the United States, a country that was founded on optimism, hope, and renewal.

And hope, renewal and optimism seems to be the flavor of our times. While we are still living in dark ages, there is a sense that a new breed of politics, a new breath of fresh air, may be allowed its place at the public table. In fact, I would even be so bold as to say that wild concepts like substance over style could have a chance to enter this election cycle.

Granted, Obama oozes style, with the type of delivery that not only presents new ideas but voices them in a way that people find it inspiring. Granted, McCain offers substantive policy but I am not wild about that sustance, as it provides a view of an America angry at the world, and fearful of others.

And that, ultimately, is what this precious voting right comes down to. By now, having lost half of the people who generally read my site (an assumption I’m making because I suspect that the previous few paragraphs will leave many of my Republican leaders angry), I can say that a lot of my thinking about getting US citizenship revolved around the right to vote and the right to belong. The USA, only 7 years ago, was a country that, for the most part, welcomed non-Americans. But since 9/11, things have changed and there seems to be a growing resentment of foreigners, largely dictated through policy pronouncements that would make the founding fathers spin in their graves.

So I am now a new citizen and, on election day, I will most probably go out and vote FOR Barack Obama. Voting FOR someone is an opportunity I missed in the 2000 election cycle (I have to admit that, had I been a citizen in 2004, I would have been more intent to vote AGAINST George Bush than FOR John Kerry).

But of course, there is a lot of work to do between now and then, and there is more than one election to go. This country, my country, is in trouble and I, like many others, have worked to do. And I hope that one or more people, having read this, will consider reconnecting with their civic duty.

But do not take this for my telling you who to vote for. Whether you believe in John McCain or Barack Obama only matters to me inasmuch as I might have to work with or against you politically. However, what would really touch me more than anything is if you, reader in any country where leaders are chosen by election, could reconnect with your community and help improve it by restoring real political dialogue, just like those republicans, with whom I respectfully disagreed on a warm night in August 2004, who decided to talk to their non-republican counterparts. On that night, all those involved may have come from different political factions but they talked in the language of exchange of ideas that so many decades ago inspired the world and defined one country, my country, the United States of America.

Is Techmeme myopic?
I’m a big fan of TechMeme, a web aggregation service that provides, at a glance, a few of what’s being discussed in the technology-focused part of the blogosphere. It has allowed me to unsubscribe from a large number of RSS feeds that were providing me with redundant information and I’ve long hoped for a version [...]

I’m a big fan of TechMeme, a web aggregation service that provides, at a glance, a few of what’s being discussed in the technology-focused part of the blogosphere. It has allowed me to unsubscribe from a large number of RSS feeds that were providing me with redundant information and I’ve long hoped for a version of TechMeme that would provide me with a customized view that providing a similar user interface for my own personal feeds.

Recently, though, TechMeme has gotten me thinking about the tech blogosphere conversations as a whole and their longer term relevance. To the small “web 2.0″ community, TechMeme serves as a bit of a paper of record; The subhead even claims that it represents the “Tech Web, page A1″, claiming to bring us the important stories. But how do those stories fare over time? Is today’s hot topic a step in understanding a longer term trend or is it just a temporary distraction that will be forgotten a month/3 months/6 months/a year from now.

Fortunately, Gabe Rivera, the founder of TechMeme must have anticipated such a question and provided a way to look at TechMeme as it was a particular point in its short history. Using the simple interface, it’s easy to see the page as it existed at a precise point in time. So I decided to start looking at the site at the same time in single month spaces. The middle of the night and middle of the day position ought to be good time stamps so I decided to look at the site at 12am and 12pm on the selected date. I also had to discount the fact that April 1st is April fool’s day so I could not use the first of the month as this fact could skew the data. Here are the dates and times I ended up with:

Today: June 2nd 2008 at 12am and 12pm
A week ago: May 26, 2008 at 12am and 12pm
Two weeks ago: May 19, 2008 at 12am and 12pm
One month ago: May 2, 2008 at 12am and 12pm
Two months ago: April 2, 2008 at 12am and 12pm
Three months ago: March 2, 2008 at 12am and 12pm
Six months ago: December 2, 2007 at 12am and 12pm
Nine months ago: September 2, 2007 at 12am and 12pm
One Year ago: June 2 2007 at 12am and 12pm
Two years ago: June 2, 2006 at 12am and 12pm

With 20 data points, here’s what I discovered.

Today

Based on today’s news at noon, it looks like the important subjects at noon in the blogosphere are Adobe’s latest move, combining Flash and Acrobat with their entry in the already crowded (Google, Microsoft, Zoho, etc..) web-based office suite market. At midnight, things were a little less exciting, with discussion around the privacy issues Google Maps is raising with their StreetView offering.

Of course, it’s still too early to tell whether those stories will have a long term impact so let’s roll the tape back a little.

One Week Ago: May 26, 2008

At noon, a week ago, the top story was about a new type of SSD, developed by Samsung. Since it’s hardware, I assume that the impact of this news can’t be felt initially but there could be longer term repercussions. Also of note on that page is a small item lower on the page about Paypal outages. An interesting trend in my research on this is that this story is slowly developing over a period of weeks and months and the noise level appears to be increasing on it.

At midnight, the discussion was around Google’s power and the needed for another organization to work as a counter balance to that powerful force in the search engine space. Coupled with the discussions last night about privacy issues relating to Google maps, it seems we are seeing an emerging pattern here.

Two Weeks Ago: May 19, 2008

Two weeks ago, at noontime, the claim that Microsoft would eventually buy Facebook and keep it close was dominating TechMeme. At this point, no announcement has been made so this is largely conjecture and, while an interesting opinion, it’s not really news. This editorial was largely in response to the news item that dominated the previous 12 hour cycle about Microsoft’s statements regarding pursuing a possible deals other than a full acquisition with Yahoo!

One Month Ago: May 2, 2008

On May 2, 2008 at noon, the big news was… that the Google RSS reader is now available for the iphone. I’m sure many people consider this event as a major turning point when… well, hmm… a big big deal. Amusingly, Adobe was also in the news that day, with news that its flash plugin would escape computers and appear in set top boxes and mobile phones.

Another big subject was Steve Ballmer’s mention that Microsoft could go it alone without Yahoo, a discussion that dominated the midnight page on that day. The Yahoo/Microsoft chat has been kind of the soap opera of our industry and this latest installment was remembered as a turning point (or not) by many.

A possibly interesting trend piece, around midnight, was also intriguing: Will Grand Theft Auto IV hurt Iron Man opening weekend sales. I haven’t seen a follow up on that piece yet, which could tell us whether video games are displacing movies as the primary form of entertainment but my guess is that the answer is no.

Two Months Ago: April 2, 2008

On April 2, 2008 at noon, the top story on techmeme was about Intel’s plan for chips that would power up more mobile devices. Interestingly, this story was largely driven by mainstream media as the lead was taken by john Markoff of the New York Times, followed by comments from Forbes magazine, and Infoworld. The other related story was the press release itself, which can be seen as bloggers pointing straight to the source of the news. I suspect that this story will probably have more legs moving forward. A cursory glance provides glances at developing stories ranging from the rumor stage (that all important Google/Skype partnership or acquisition… which didn’t happen) to the focus on process (like the approval of Office Open XML as an ISO standard).

The departure of Google’s CIO dominated the prior night’s news cycle and word of Apple’s 3G iphone started to filter through.

Three Months Ago: March 2, 2008

March 2, 2008 at noon provides us perspective on today’s news, thanks to Microsoft’s announcement of ITS entry into the web-based office suite market. When put side by side with today’s announcement by Adobe, it seems to start pointing to more of a trend. Beyond that, little news that seems to be of note from a memorable standpoint.

The interesting thing here is that the same subject was leading the previous night’s news cycle. This seems to establish a first rule for techmeme: subjects that survive on the front page more than 12 hours may be worth paying attention to.

Six Month Ago: December 2, 2007

There’s an all saying in journalism that 3 items make for a trend. In the case of this study, it looks like Web-based office suite are definitely the hottest trend around, as the top news on December 2, 2007 at noon was information about the future of Google’s offering in that space (either that or there is an unwritten rule in the technology field that information about web-based office suites MUST be introduced on the second day of the month or wait until the following month).

The subject was starting to climb the chart 12 hours earlier, even thought the discussion at the time was dominated by a Facebook misstep (remember Facebook Beacons? Well, that was around that time). From an interface standpoint, it also brings up something that I’d like to recommend to Gabe: could you add and up or down arrow to highlight if a subject is getting more play or not. On something like this, it would be nice to get an idea of the stickiness of a topic. It appears many topic appear low on the page and move up over time, the quicker and faster they move up seems to indicate the importance of the story and it would be a nice addition to have that info on the screen.

Nine Month Ago: September 2, 2007

September 2, 2007 was a quiet news day. I guess everyone was mourning the death of the newspaper, which was forced by Google on that day, according to the noon-time headlines. There doesn’t seem to have been any other major news around midnight either. This, however, could be an artifact in the data as September 2, 2007 was a Sunday, which is generally a pretty quiet news day as most people don’t work on Sunday.

Interestingly, a story that is just now starting to get more notice is the continuing brushfires around Paypal’s outages. Not that sexy a subject but one that started to be raised around that time. At the time, discussion of Google’s entry in the mobile market centered around the idea they would deliver a device instead of a platform.

Last Year and Two Years Ago

A year ago, at noon, the Techmeme conversation was around porn. During the night, though, the conversation was centering around the acquisition of Feedburner by Google. This is probably remembered by people in the industry as an important milestone and here, techmeme shines at organizing a package with the appropriate conversations.

Things do not improve much if you go further back: 2 years ago, at noon, and midnight, gives us little to mull over.

Conclusion

The data seems to point that the front page of TechMeme largely represents what’s hot right now but does not necessarily highlight stories which have a longer term type of impact. In that sense, it may also be highlighting that discussions in the tech blogosphere are largely centered on insider-type minutia while failing to put things in a larger context. This appears to present a myopic view of the tech world that leaves us with lots of data but preciously little information. So while TechMeme provides a useful tool in terms of getting an idea of the pulse of the conversation “right now,” it does little in providing data that would allow someone to understand the larger trends that are affecting our world as a result of the internet (and web 2.0 revolution).

I would argue that the answer to the question I posed in the title for that post is a resounding yes. Because it deals largely with the trivial and assess little value to longer type impact, TechMeme creates a self-imposed myopia on its readers and participants. A possible exception is when a story manages to survives through multiple 12-hour instances, providing many angles to the same events. But those events are few and far between.

Whether the lack of headlines with a major impact is a phenomenon that is unique to TechMeme or to the tech world in general is a question I’d like to leave to readers and I’d appreciate comments as to your thinking around this.

But all this comes down to a simple fact: if you’ve missed what happened on TechMeme in the last XX hours, days or weeks, you may not necessarily have missed much. so kick back, relax, step away from the computer and, if you need to catch up, you can always pick up a mainstream publication that may cover a distilled version of what happened if it’s of any particular significance.

Demographic Shift
Looking at recent events, it appears that we are at the tipping point of a substantial demographic shift in power. In this entry, I highlight my thinking as to why I believe we're there and some of the potential impacts.

Like Fred Wilson, I read a lot in an attempt to triangulate my understanding of our world. However, recent unrelated events seem to triangulate to a major shift that few seem to discuss: The one from a world controlled by Baby Boomer to one where younger generations are taking the steering wheel. This has major implications as it represents the first seismic demographic shift since the late 1960s.

Let’s first take a look at the data points from recent weeks:

All those data points seem to highlight a major shift in the demographics of influence. For most of my lifetime, the core influencers have been the baby boom generation (aka. my parents’ generation) and their hold on politics and consumer behavior from the late 1960s on has been uncontested up until now.

But that may be changing.

Media

Up until recently, media consumption was divided between TV, radio, and print when it came to news and movie theaters, recorded media (VCR in the 80s and DVD now), TV, and live performance (and I’m grouping both live music and theater in that category) for entertainment.

In the 90s, we successfully established the Internet as a source of delivery for news but most efforts to do turn the net into an entertainment channel failed due to network and CPU constraints. Those constraints disappeared since the turn of the century and the net started to take a stronger place as an entertainment channel in the last few years.

While the net is slowly eating up the traditional media budget, another market is started to eat into the pie and that is videogames: it first started within a small subset of the overall population (males under 35) but is slowly starting to spread to a wider population as can be seen with the success of the Nintendo Wii and of certain virtual worlds (like Club Penguin or WebKinz, aimed at kids).

Similarly, it appears that traditional media is suffering from a slump in their own advertising revenue as a result of not only decreasing audience but also decreasing amounts of support from advertisers due largely to the fact that most non-digital assets are not easy to track in terms of response rates (an issue I’ve addressed in the past in several different posts.)

So the question now is where the value will reside moving forward. Many of the smarter media companies are now starting to understand that their product is not necessarily in the delivery medium (for the longest time, print publishers have assumed that their goal is to deliver paper-based products; music publishers were tied to whatever format, be it record, 8 tracks, tapes, or CD, they packaged their product in; TV producers have looked to their channel as the center) but that the value they add is in the packaging and financing of interesting offerings in a cross-media fashion. This is the driver behind efforts like the recent acquisition offering of CNET by CBS and Ars Technica by Conde Nast.

What we will see here is a progressive move to anytime, anyplace as far as any entertainment or news package is concerned. Mass media is not really dead, it’s just made up of an aggregated model now. This is a model that some stars like Madonna understand and have adapted to, according to the New York Times (emphasis mine):

Madonna’s show, to promote her new album, “Hard Candy,” was also part of a technologically sophisticated, 21st-century product rollout that involved multiple media tie-ins. It was broadcast live on the Internet by MSN and on cell phones worldwide by Verizon and Vodafone. In addition to the 750 spots given to fans on the line — that’s on a line, not online — about 1,000 were given to radio contest winners, and 200 to members of Madonna’s fan club, which now has a social-networking component.

The secret here is to appeal to the audience on its own terms and where it is. Some less savvy executives may think this is a temporary blip but I suspect that, as far as media is concerned, it’s only the tip of the iceberg. Talk to teenagers today and they have little understanding or patience for media that does not fit their needs.

This, however, does not mean that everything needs to be free. Many new media advocates will claim that, in the new world, copyright is dead and value from media can only be extracted indirectly. For example, they see rock concerts as the way to extract value from music tracks that are distributed for free. While those types of economics are fine, they seem to leave some money on the table. For example, it is true that teenagers look to the value of an MP3 track as low or even 0. However, the same teenagers buy music from the itunes store or download and pay for ringtones. And let’s not forget last year’s experiment by Radionhead, which put all of its album online for free in a “pay what you wish” model: if people will always opt to go for the free option on a good, then Radiohead’s US$10 million first week sale for their CD doesn’t make sense. Once again, this goes back to the new fundamental rule that, as long as you offer your goods across a wide array of media, you will maximize your offerings.

Politics

In the intro, I also talked about Barack Obama and how he appears to defy the prognostication made by many commentators. I would venture to say that the reason for his continued success in the face of any existing model is also based on the realization that he, as a candidate, can make himself available in any media form. A measure of the online success in multiple media shows the story (thanks to Techpresident, we can easily see that data as it relates to MySpace, Facebook, YouTube, Technorati, eventful, meetup, and traffic data accoring to Compete and Hitwise.) When looked through the traditional lens of comparing election cycles to earlier ones, as most TV commentators appear to do, the Obama campaign can’t survive. But the problem is that such lens does not include the data above.

For all my lifetime, the storyline of American media consumption and of politics has been largely formed around one single demographics class: baby boomers. My generation, Generation X, was considered a wasted one as Baby boomers looked at it as poitically apathetic, and generally seen as a bunch of slackers with no interest in corporate lives. There might have been some element of truth to the story line as members of Generation X came of age in a cynical world where they were told that the corporate life was no longer a guarantee of lifetime employement and where they were consistently reminded that social security would fail and they would pay for the system but not benefit from it. As a result, many turned away from traditional institutions and started building alternatives.

The most visible alternative model is the rise of the Internet economy which was largely built by 20 and 30 something and funded by older people who understood some of the value being created. But along the line, many other things changed: first, the work-hard/play-hard ethic moved, as people got a bit older, to a need for a better work/life balance. This was a byproduct of dropping the boundaries between office and home. As the two merged, a new set of boundaries needed to be created.

As more of those boundaries changed, some social mores were also affected. In a way, one could argue that the boomer’s self-obsession created a counter effort that led to more collaborative and more society-centric views. Because they had been beaten down by their elders, GenXers tried to build a system that swung the pendulum on the other side: one where age/culture/race/sex/etc… were de-emphasized through the electronically mediated space of the Internet. This is not to say that all the problems associated with those categories went away but I suspect that a study of demographics would show younger people to be more tolerant and generally more on the left side of the political spectrum than older people (maybe a representation of Churchill’s “Show me a young conservative and I’ll show you a man without a heart. Show me an old liberal and I’ll show you a man without a brain“)

Enters Obama, a candidate who, by most measure can be considered further to the left than Hillary Clinton. When he talks, he highlights partnership, and generally looks to a more “European” approach to society. This seems to be a rebuke of much of the individualist type of policies highlighted since the Republican era. And that’s where the pundits start having trouble. Is the 2008 presidential cycle like 2004? 2000? 1996? 1992?

The truth of the matter is that the 2008 election cycle is unlike the other ones because of a substantial demographic change. Obama’s voters tend to be people who have not previously been very involved in the political process. Some are from particular racial background but I suspect that a bigger part of the story is the demographic clash that’s coming our way.

The interesting thing is also the type of opportunity this can present from a political messaging standpoint and an issue standpoint. Some of the issues that were considered as dangerous to approach in previous election might now be safer due to the different outlook (for example, I have read somewhere (and don’t remember where, which is why I’m not linking to it) that younger Americans tend to be more willing to pay higher taxes in exchange for a bigger social net).

I suspect that the Obama campaign is currently surprising pundits for three main reasons:

It understands that media and politics are intertwined and works hard to run itself as a media organization.
The campaign understands that media is now participatory, and ought to be consumed across multiple channels when the consumer wants to.
The campaign understands that it can find voters where no other campaign has gone to get them. That means bigger registration drives and an increase in the number of new people signed up on the voter’s rolls, something that could have a very important impact not only in this election but in a lot of future ones too.

Conclusion

I am sure that I’m only scratching the surface of a pretty important phenomenon with this entry but I have to admit a fair amount of surprise as to why this doesn’t seem to be more noticed. I also wonder whether my assumption here are wrong and what the larger impact of such a demographic shift could be. I’d appreciate comments from others as to what they think it ought to be.

No Changes in Mobile
Today’s announcement by Nokia that it would acquire all of Symbian represents an important move in the upcoming battle for next generation mobile devices (to call them phone seems unfair as they tend to do more than just make calls). In this entry, I’ll take a quick look at how the different players are currently [...]

Today’s announcement by Nokia that it would acquire all of Symbian represents an important move in the upcoming battle for next generation mobile devices (to call them phone seems unfair as they tend to do more than just make calls). In this entry, I’ll take a quick look at how the different players are currently approaching the market and what it might say about their potential moving forward.

Strategy: Hardware? Software? Service? Partnership?

Let’s take a look at the players in the “smart phones” market: Apple, Nokia, Microsoft, RIM (blackberry), Linux Mobile, and Palm. Sun used to have a Java Mobile but it seems to have dropped off the market, in terms of device market share. And then, there’s the new pretender to the crown in the form of Google, with its Android OS offering.

How do they stack up in terms of Hardware? Operating System? Service Offering? Well, here goes:

	Hardware	Software	Service(s)
Apple	Y	Y	Y
Google	N	Y	Y
Linux	N	Y	N
Microsoft	N	Y	N
Nokia	Y	Y	Y
Palm	Y	Y	N
RIM	Y	Y	N
Sun	N	Y	N

A first glance at this table seems to reflect some of the player’s pre-existing biases. Microsoft is known for its software business so that’s where it put the most weight; Google is all about free software to power their services; RIM and Palm do a hardware software combo; Apple throws its weight behind a fully Apple controlled experience.

However, there are a few caveats: For example, while Microsoft is in the space primarily as a software provider, it also owns Danger Inc., makers of the Hiptop. And while Palm has its own software, many of its devices are powered by Windows Mobile.

But apart from those exception areas, it appears that strategies are organized across four business models:

OS only: This strategy is preferred by Sun and Linux. The model here is to provide an operating system that can be used by others. For Sun, this strategy has largely failed as substantially less than 1% of all handsets around the world is powered by their OS. Linux, which really was the first open source mobile OS has captured about 4 percent of the global smart phone market to date. Microsoft is the big leader in terms of that strategy, with its Windows Mobile OS currently powering about 12 percent of all smartphones around the globe.
Software + Service: All this leaves us with Google and their Android offering. Much of the commenting today is that the move Nokia just made was aimed at the fact that Google had an “open” operating system. But what Google is really trying to do is provide an operating system that melds OS and services. Either that or they are in the OS only camp. Either way, they are not playing in the same space as the iPhone or Nokia (see triple play below).
Hardware + Software: This model is preferred by RIM, makers of the Blackberry, and Palm (especially with their inexpensive Palm Centro line). This strategy works best if you want your device to be focused on few use scenarios: The blackberry is first and foremost a portable email station; Palm devices are first and foremost PDAs. This orientation comes from a past where the device wasn’t initially intended as a phoe but morphed into one.
The triple play (ie hardware/software/service): This is the strategy currently used by Apple with the iPhone: they provide the hardware, the software, and a set of services (me.com, iTunes, Software store) on a complete package. Through recent acquisitions, Nokia has been moving in this direction: while they were traditionally a hardware player, they started adding services to their devices. With today’s announcement, they’re also getting some control over software.

So looking at this, it becomes apparent that while many are pointing to Nokia going after Google, it may not be the target. Since Nokia does service and hardware already, getting more control over its own OS is probably an important move.

Open Sourcing

I can already hear some readers snickering: Symbian’s been open-sourced so Nokia does not have control. Let me make something very clear: the gold rule (”he who’s got the gold makes the rule”) applies to Open Source as it does in other areas. While it won’t get exclusivity, Nokia, having paid $400+ million to open source Symbian will be considered “more equal than others” by the Symbian foundation, I’m sure.

But why open source? If we look at the players mentioned above, their position on open source and their market share, the picture becomes clearer:

	Open Source	Handset Market Share (in percent)
Apple	N	7
Google	Y	0
Linux	Y	4-5
Microsoft	N	12
Nokia	Y	65
Palm	N	>1
RIM	N	11
Sun	N	0

Looking at the market share date, Nokia’s move doesn’t seem to make sense: They currently control 65 percent of the market, why would they bother? But here’s the thing: There’s this newcomer called Apple and they didn’t exist 18 months ago: they now have 7 percent of the market and are growing.

If I’m a Nokia executive and I’m looking at this data, I start worrying. So what do I do? I look at competitive advantage: initially, I try to compete with cooler devices (the Nseries) and while it stops some of the bleeding, it doesn’t appear to fully halt the competition. So I start looking at services as a way to stabilize revenue (Maps, Music, Games) but that doesn’t stick. Then I realize that my problem is the operating system: I’m stuck with that alliance of partners I have but they’re slowing me down. So I have to take over. But I can’t do that by just kicking all of them out. So I acquire and open source.

The open source move fills three strategic objectives:

I get to keep partners still involved but get them to agree to my taking charge.
I get other people to improve my code and/or developing FOR it, thus allowing me to counter a potential Google threat if it ever materializes.
I get to look more “open” than Apple and will use that in my messaging

The Future: Collateral Damage Then Status Quo

Of course, while it works out great for Nokia, there is a little bit of collateral damage:

Sun’s offering, while interesting had already sunk largely into irrelevancy so they’re no longer a player.
Palm OS, was teetering on the edge but now it’s pretty much cooked.
Linux, while still having teeth, will probably see its market share dwindle as its unique selling proposition (more open than others) is gone.

So that’s unfortunate but what does it do to the rest of the market. Well, in fact, it looks like today’s events wont’ have much impact: Palm, Linux and Sun represent about 5 percent of the market. With Apple at 7%, RIM at 11%, Microsoft at 12% and Nokia at 65%, it looks like the market will stay pretty consistent. The remaining 5% will be carved out by the existing players and by Google’s entry into the market. Nokia will remain at the top for now.

Potential events that could have a more disruptive effect: a Microsoft/RIM partnership (or outright acquisition) which, when integrated would give Windows Mobile a 23% market share. But short of such a move, it looks like the situation will mostly stay at status quo for the time being.

Google unveils web-based OS
A product long rumored and whose very existence was long denied by Google itself finally launched: the Google browser, aka. Google Chrome. There are a number of things that are good and a few that leaves one scratching his head but ultimately, it is very clear that Google is working very hard to ensure that [...]

A product long rumored and whose very existence was long denied by Google itself finally launched: the Google browser, aka. Google Chrome. There are a number of things that are good and a few that leaves one scratching his head but ultimately, it is very clear that Google is working very hard to ensure that it can keep tight control of the ground its gained and fend off potential threats by the likes of Microsoft.

Strategic Position

Google lives on the web. Most of its application need a web layer in order to operate and, if it were to find itself in a position where the access to their application where to be compromised through the equivalent of a strategic man in the middle type of attack, their business would die off. So, if Microsoft, which currently still controls around 70 percent of the web browser market, were to decided to change their code to impact how Google applications function, Google would be in deep deep trouble.

Because Google realizes that the browser is sort of their achilles heel, they had to make a play into that space. The first thing they did was help the creation of an alternate offerings, by giving large subsidies to Microsoft competitors like Apple and the Mozilla foundation, largely dolled out as revenue for traffic generation through the search box. See, one of the thing not too many consumers are told about is that the search box in Safari or in Firefox are actually paid placements: Every time a user uses that box to perform a search, a little bit of revenue goes back to the browser creator. So that’s great because it allows those alternative browsers to develop and, as long as Google is people’s preferred choice anyways, no one is complaining.

Of course, there are certain issues with the arrangement: a lot of the people who have installed Safari or Firefox don’t like online ads and some developers were happy to provide tools allowing those users to remove ads from web pages. Google wasn’t too thrilled about that but it found the issue mostly OK as long as the arrangement didn’t hurt its advertising cash cow too much.

But over time, this model created a problem. The feature was tested by consumers who, having seen too much of their screen real estate polluted by ever larger ads, liked what they saw. And, as ads became smarter and started to target users individually, it spooked consumers. Being able to block certain ads became a product differentiator and started to cause some problems to Microsoft.

So, with IE8, Microsoft is starting to claim that it will help users and one of the trial baloons it has been floating is that the user may have more control over what ads they can see and possibly may be able to block some ads.

For Google, that’s not too happy a development: the idea of being able to provide free products is based on the fact that Google is really and advertising company with a side business in search. And if the advertising is blocked, then Google’s whole business model falls apart.

So now, Google needs to regain some level of control. For many years, it’s been going after bits and pieces of the Microsoft empire: a little bit of the office suite over here (Google Apps), a little bit of the enterprise space this way (Google Appliances), a little extra screen real estate (Google Widgets), an alternate application distribution network (Google Pack)… but the premise behind most of their offerings was that life was now in the “network cloud” (basically recalling Scott McNealy’s old “The Network is the Computer” concept with 2.0 flavor).

With Chrome, Google is now trying to bypass most of Windows. There’s still a few things that Windows will be allowed to do for now (connecting to the Internet, managing the communication layer) but it seems that this is the farthest Google has gone into addressing Microsoft head on. In the mid-1990s, Marc Andreesen, then at Netscape, said he wanted to relegate Windows to being just a set of basic libraries and, with this offering, Google is trying very hard to do so though I am sure you’ll never hear them say so.

Will it work? I don’t know. At first glance, I’d say that their challenge will be to get the software installed on a lot of machine. For all their past efforts, it looks like it may take a while. Once they have gotten Google Chrome installed, the next thing will be to move up to a default setting. That will be another challenge.

What I suspect is that the company will soon offer a customizable version to cable and phone companies to ensure that they choose Chrome over Internet Explorer. And one thing I’m pretty sure about is that whatever happens, Google will ensure that ad blocking software will not work on Chrome.

Memory Management: Marketing or Truth?

One of the things that leaves me scratching my head is whether the memory management Google claims as an important piece of its offering is actually based more on marketing messages than reality. Buried in the developer’s menu is an item that supposedly offers a view into the memory and CPU usage of Google’s new browser. Yes, the browser feels fast so it’s clear that there are a number of improvements there but what is that costing in terms of memory. Here’s what the browser reports:

What you’re seeing here is the browser running two plain HTML pages and an instance of a richer web-based application (Google Reader, which, according to this, accounts for 40Mb of memory space used). Where I get a little puzzled is when I looked at what Microsoft reported through its task manager:

The same 5 processes appear (but since Windows only knows them as running as chrome, it can’t identifty which is which but the numbers are very different: Chrome reports an aggregate memory use of 96,300K while Windows reports an aggregate memory use of 121,544K or 25,244K more. To be very honest, I don’t know which number is correct but, with only 3 tabs open (and the tabs I have on here are the minimum I have open at any time), I don’t find it very reassuring to see this type of gap appear. Will it get worse as I add more tab? I don’t know but it’s something worth investigating.

iPhone 2: More than meets the eye
There has been much written about Steve Jobs’ keynote on Monday, introducing a new version of the iPhone, a rebranded version of .mac, and a new version of the OSX Operating System. However, amid all the praises, there seems to have been a few items missing from the discussion. iPhone: 3G OK but not everywhere As expected, [...]

There has been much written about Steve Jobs’ keynote on Monday, introducing a new version of the iPhone, a rebranded version of .mac, and a new version of the OSX Operating System. However, amid all the praises, there seems to have been a few items missing from the discussion.

iPhone: 3G OK but not everywhere

As expected, Apple did introduce a version of the iPhone that will run on third generation (3G) networks. Steve Jobs made a big deal about the wide availability of this new device globally, highlighting a large number of countries in which the product will soon be available.

Glossed over, however, is whether it makes much of a difference. Let’s take a look at 3G coverage offered by AT&T in the United States (I managed to get to this map from a list AT&T provides):

On this picture, the areas marked in blue are the areas where AT&T offers 3G services, as the following legend reminded me:

So while it is true that you will be able to buy a 3G iPhone in most of the US, it’s not necessarily a guarantee that you will be able to use 3G service in areas outside of major urban centers. It was not mentioned on Monday and I think I may have a good idea as to why: to say that you are offering a tool which will be available only to urbanites would have stolen some of the magic.

However, the truth of the matter is that most of the current iPhone buyers appear to live in the target areas. In my experience, while iPhone are fairly ubiquitous in the New York, Chicago, DC, and San Francisco circles I tend to run in, I haven’t seen as many of them when I go to other areas. It could be that the device is attractive to people who live in certain areas and may not be as attractive to others. I don’t know why it is but it’s just an observation.

Cost

A possible reason for the phone currently being more popular in large cities may have been price, an item that Steve Jobs also mentioned as something they needed to work on. When the iPhone was first introduced, its $599 price was seen as high compared to the rest of the market. Subsequent price cut brought the price of the phone to $399, a price that was more or less in line with what other smart phones were retailing for.

When it was first introduced, Apple dictated that customers would pay full price for the device and, on top of it, AT&T would pay Apple an extra $18 per month for every iPhone subscriber (or $432 over the 2 year contract that a subscriber would be locked in for).

When the iPhone was introduced, plans were ranging from $59.99 (for 450 minutes, 200 SMS, and 5000 night and weekend minutes) to $99.99 (for 1350 minutes, 200 SMS, and unlimited nights and weekends minutes) with no extra data charges for browsing, email etc…

So, assuming a low cost $59.99 individual plan, the 2 year outlay for an iphone user would be $1440 for subscriptio. Tack on the $399 price of the iphone and that’s $1840 over a two year period.

That’s a lot of money and Steve Jobs announced that they had heard complaints about the price, which have now resulted in this new device being available for prices ranging from $199 to $299.

The new plan, according to an AT&T press release, start at $39.99 was voice service only with an extra $30 for 3G. This means that the most basic plan is now $69.99. By the look of it, the extra $30 plan is similar to the existing PDA Personal plan they are offering (It’s unclear whether SMS is included in the plan but AT&T does not seem to provide any information as to SMS related charges).

So, over the two year life of the plan required by the contract, the cost would be $1680 for subscription. Tack on the $199 to that price and you end up with a total of $1879 over a two year period, roughly $40 more than the outlay for first generation devices.

The interesting thing here is that the price is roughly the same even though the entry point is lowered by a third. This plays to the perception that the price has been drastically lowered but the truth of the matter is that it hasn’t changed much.

Revolutionary Model?

What has changed, it seems, is the relationship between Apple and AT&T. A year and a half ago, when Steve Jobs introduced the iPhone, it looked like AT&T had bent over backwards to ensure they would get the device. Apple was receiving kick-backs; Apple was dictating the price of the device; Apple was controlling the interface; Apple was controlling the activation (which could be done from home); You could buy an iPhone at the Apple store, go home, use iTunes to activate your phone and, apart from receiving a bill from them every months for the following two years, you didn’t really have to deal with AT&T.

Fast forward to today.

The device is heavily subsidized; AT&T keeps all the revenue from subscription; Apple still controls what’s on the phone deck; AT&T requires in-store activation.

Suddenly, the business model doesn’t seem so revolutionary. In fact, it seems that Apple is now falling in line with every other phone device manufacturer. Yes, it still has control of the interface but it seems that wireless providers are more lenient when it comes to that these days.

What I suspect is that reality has largely set in. While lofty goals of selling 10 million iPhones were mentioned, 6 million units have shipped. 6 million is a very respectable number. In fact, it’s an impressive number when you consider the price the device sold at.

The problem is that 6 million is still a long way from ensuring 10 million devices sold by then end of December. So AT&T must have mentioned that fact to Apple and told them that while it was all very nice and they still wanted exclusivity, they would have to renegotiate terms. And the negotiation brought Apple “back in the fold.”

A funny thing is that while AT&T executives were high-fiving themselves over that success, Jobs was probably looking at another portion of the market they had not discussed: software.

See, hardware is all great and fun but ultimately, it’s a sucker’s bet: there’s only so much money you can wring out of a device and margins never really increase. The previous iPhone was costing about $220 to build. This one, with a 3G chip and a GPS will probably cost a little more. Of course, it’s subsidized by AT&T (i’d suspect that AT&T pays between $100-200 per iphone) so Apple still makes some money but that’s pretty consistent. Increasing margins on such a device would be hard as it requires heavy negotiations with suppliers to get better costs for parts and reconfiguration of production lines to improve efficiencies. Those are not easy areas and investments need to be pretty heavy in order to see returns.

But then, there’s software.

Software is almost diametrically opposed in its scalability of cost (for a good understanding of the advantage, see dictionary under Microsoft ). Yet software, in itself is still pretty expensive to produce (the same is true of music or any other creative endeavor where the product can be digitized). However, imagine being able to build a marketplace where one would sell software produced by someone else. It would look like the type of marketplace one would use to sell things like music, or maybe movies, or TV shows.

Oh wait, I know, it would look like the leading marketplace for selling music. You know, the one by Amazon… uh, no, not that one. Who makes that leading marketplace? Oh yeah, Apple with the iTunes store.

Control

In the fourth quarter of fiscal 2007, Apple reportedly made $808 million in the category that includes the iTunes online store. This, largely by providing infrastructure to sell other people’s product to users of its iPod.

Now comes the iPhone as, essentially, the next generation of the iPod… and it seems that, as Apple initially strong-armed the music industry into giving it a portion of revenue it didn’t need too, Apple is now working on ensuring that it will get control over what goes on their own next generation iPhone.

Last year, when they first introduced the device, it was locked down and fully under Apple’s control. But over the year, tools appeared to break that stronghold and people started developing applications that enhanced the device for anyone who was basically willing to void warranty.

Apple saw what was happening and initially tried to fight it but the company eventually realized that attempting to fight such a trend was essentially like a game of wack-a-mole. Fun for sure, but hardly profitable and/or potentially successful. So Apple relented by providing a software development kit, a move that it hopes would bring developers back into the fold.

This plugged the issue of non-standard development and, thanks to the requirement to agree to certain terms and conditions, Apple can now dictate what applications can and can’t be created for the iPhone and it’s not the first time that Apple uses its SDK agreement to limit what applications can and can’t be built using it.

At this point, though, it still OK as Apple gives its developers ways to fill gaps that exist on the device by providing software that Apple did not provide.

And that’s where Apple’s Push Notification Service comes in. At first blush, it looks like a nice idea: instead of running all applications in the background, you just have your current application talk to that service and that service then relays information to the Apple server before passing it on to you. It “simplifies” things and saves battery juice. That’s all great, until you start thinking about the implication: Apple now knows what works and what doesn’t in terms of applications.

The company will not only know which applications are being downloaded to iPhones, since the only way to load an application legally is through the iPhone store provided by Apple, but it will now know whether the applications are actually used and what kind of usage pattern they have.

Of course, one would assume that since Apple is such a great company and so developers friendly, it will share this information in almost real time with the application developers.

Except it won’t.

The other thing this does is that it provides Apple with a central system that knows what users are doing with their iPhone. This is basically focus groups on a global scale and it’s very impressive.

Apple has essentially created for itself a device that will keep information on what applications are being used on it, how much they’re being used, and by how many users. From there, I suspect it won’t be too hard to build an interesting roadmap that seems to magically mirror the best applications.

And the developers of applications that were filling the gap created by Apple at the time? Well, it will be a problem for them to try to compete with Apple but I’m sure the company will be happy to have them develop other applications after it plundered their previous successful one.

7
The memory fades, the pain levels: 7 years ago today a lot of us lost our innocence. 7 years ago today, it seems both like a lifetime away and an instant. But today, I can say that I got past most of the funk. Sure, I still look up in the sky when a plane flies [...]

The memory fades, the pain levels: 7 years ago today a lot of us lost our innocence. 7 years ago today, it seems both like a lifetime away and an instant.

But today, I can say that I got past most of the funk. Sure, I still look up in the sky when a plane flies lower than expected; Sure, I still get some chills down my back when I get close to ground zero; but, for the most part, I can go about my life without being reminded of what happened.

Today, my concerns have evolved: it’s more about building a better future for the generation born after 2001, that of my son, than it is about dwelling on that horrible and unfortunate date.

But today is also a time for reflection: there is still only a construction site on ground zero, the result of wrangling by different factions about what the place should be: it may be weariness on my part but maybe the best way to honor the dead would be to put your own agenda aside and try to figure out where the common ground is. Whether you were affected directly, through the loss of friends and loved ones, or indirectly (and, let’s face it, most of us in the USA were affected at least indirectly), a way to celebrate might be to reach out to someone you generally wouldn’t and try to understand what ground you share.

7 years ago, New Yorkers pulled together. 7 years ago, we were all as one but somewhere along the way, the country went back to being apart. Why not make today a day to bring all of us together again as New Yorkers, as Americans, as members of the human race.

In Memoriam: Carlos Dominguez, Mark Ellis, Melissa Vincent, Michael DiPasquale, Cynthia Giugliano, Jeremy Glick, David Halderman, Steve Weinberg, Gerard Jean Baptiste, Tom McCann, David Vera.

Quiet Moves
It’s been very quiet here on TNL.net but the same has not been true of my life. As a matter of fact, it’s been extremely busy. The Job Search The job search has ended and thanks to the many people who have helped. It’s been an interesting excercise in learning how to use social tools to achieve [...]

It’s been very quiet here on TNL.net but the same has not been true of my life. As a matter of fact, it’s been extremely busy.

The Job Search

The job search has ended and thanks to the many people who have helped. It’s been an interesting excercise in learning how to use social tools to achieve a specific goal. Here’s how I did it:

As longtime readers of this site may know, I am a tad obssessive about keeping my address book up to date. Over the year, it’s grown and now has about 1600 people in it. When I started this search, there were over 1700 people in my address book but, after doing an email blast, I had to prune it as I could not find information about the missing folks.

With over 1600 emails out, I also combined a blog entry, used twitter, facebook, linkedin, and friendfeed to alert people to my job availability. Those efforts paid off as I ended up getting over 600 emails relating to my job search, talked to 82 prospective employers, followed up through second and third rounds of interviews with about a dozen companies and ended up with four serious offers. This all happened over the course of less than 60 days and I am now happily employed again.

So I’m sure you’re now wondering who and what.

To answer that question, I must first go back to a previous entry and revise some of my earlier thoughts. When I first left HSBC, it was over the belief that all banks were equally impacted by the mortgage crisis. It was also based on the belief that regulatory controls had left all banks in a state of near paralysis. However, I must now say that judging a whole industry based on a single example, no matter how powerful a player that example is in a particular market, can lead to a number of flawed assumptions.

At the same time, one of the thing I’ve been thinking about a fair amount since I left HSBC is the nature of transactional data and how the type of experience one acquires in the finance world easily translates to other online effort. As a result, it’s given me a deeper appreciation for the fun that finance provides, as far as building complex technical solution.

Yet, building purely based on specifications other people have put together is something that I’ve always found limiting. I wanted to be more involved in the discussions around strategic positioning and product development and these discussions seem to have moved largely outside of the control of IT departments. Increasingly, the information technology department is concerned with building based on a set of specification in which they have had little strategic input. It explains some of the disconnect I felt in my last year at HSBC and also explained where I wanted to take my career. It wasn’t a fully conscious decision until I put it under the microscope and figured out what I wanted to be when I grew up.

As I stated time and time again when talking to people over the last few months, I bring three types of capabilities to the table: I’m a strong internet strategist, a strong technologist, and a decent international IT project manager. Those are the three skills I bring to any organization, listed in order of preference.

When researching the market, I figured that this meant I ought to find a job where I could help shape the internet strategy of a company and/or of internet-based products for that company.

As a result of many discussions, and based on my background in both Internet and exposure to the financial sector, one job became more attractive than the others in front of me so I took it.

I am now Vice-President, Product Management for the Global Transaction Group at Deutsche Bank. The news started filtering out over facebook and linkedin when I updated my profiles there but I had not come out and stated on TNL.net so here we are. As always, activities on TNL.net continue to reflect my own opinion and are not related in any way shape or form with my employer. They don’t tell me what to say here and I do not speak on their behalf on this site.

But wait there’s more!

Of course, one of the downside (or maybe upside) of being between jobs is that one finds ways to start getting involved in new projects. And for me, that new project is Extra 15. It’s very stealth right now and I’m working on the coding at night but I can tell you that it’s very fun to get my hands on code again. Beyond the regular job and the demands of regular life, that project is where I’ll be concentrating some of my energy for the next few months so updates on TNL.net may continue to be light.

So there you have it. Another update on what I’m up to. I’ll have more soon….

2:31 PM | |

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Blog Archive

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Today

One Week Ago: May 26, 2008

Two Weeks Ago: May 19, 2008

One Month Ago: May 2, 2008

Two Months Ago: April 2, 2008

Three Months Ago: March 2, 2008

Six Month Ago: December 2, 2007

Nine Month Ago: September 2, 2007

Last Year and Two Years Ago

Conclusion

Media

Politics

Conclusion

Strategy: Hardware? Software? Service? Partnership?

Open Sourcing

The Future: Collateral Damage Then Status Quo

Strategic Position

Memory Management: Marketing or Truth?

iPhone: 3G OK but not everywhere

Cost

Revolutionary Model?

Control

The Job Search

But wait there’s more!

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