Wednesday Nov 18, 2009

Legalise marijuana

I was watching Newsnight yesterday evening, which is running a show on "recipes for a good and palatable tax".

Britain is facing its biggest deficit for 40 years. The question is not whether taxes should go up, but how.

A number of people came up to propose some good ways of generating new taxes. It occurred to me that legalizing cannabis/marijuana should provide quite a nice windfall in taxes. I have not read the recent book "Economics and Marijuana: Consumption, Pricing and Legislation" which is bound to have a detailed analysis of how much one could expect in taxes from legalization, but going from the sentence in the introduction

...expenditure on marijuana in Australia is estimated to be three quarters of that of beer and twice that of wine.
and putting that together with the figure I found in "Alcohol: Tax, Price and Public Health" that £6 billion were collected in taxes on beer, would make me think that one could collect at least £4.5 billion on cannabis if the tax rate for cannabis were the same as that for beer - but it could be more as people have gotten used to paying for the risk to the dealers. In Keneth Clements and Mert Daryal's online paper "The Economics of Marijuana Consumption" (p 18) they estimate that in 1995 the Australians spent 5 billion dollars on Marijuana. Since there are three times more people in the UK, and counting the fall in value of currencies over a period of 10 years, we have 15 billion 1995 Australian dollars that might now be worth $22 billion, which converted into pound sterling is £12 billion. It seems quite reasonable then that out of a spending of that size it should be easy for the state to recuperate at least 1/3 of that if not more.

One could furthermore save a huge amount of money on reductions in police surveillance, legal cases and prison sentences. This should be even more true in the USA, which has a huge prison population (10\* larger than most European countries). About.com has an interesting article on the subject "Should Governments Legalize and Tax Marijuana?". See also "A Budget Cure: Marijuana Taxes?". This idea is clearly making its way: Governor Schwarzenegger recently proposed opening the debate on this issue.

In the Newsnight program the proposal that won approval was the proposal to tax the rich a lot more on their pension funds. So my guess is that a lot of rich people should be very keen to legalize marijuana in the very near future.

It would be quite ironic in the end if a mind altering drug were to pull the state out of a hole created by mathematically deluded stock analysts on a huge ego trip.

Friday Jun 19, 2009

Nobody is responsible

Peter Sloterdijk animates a program on the major German Television Station ZDF, entitled the Philosophical Quartet. The latest program of his, which could be translated as Risk and Responsibility: the art of being Nobody is very much worth watching (if you speak german). Sloterdijk starts off the program by reminding us of the ancient story of Ulysses and the Cyclops. In order to free himself from the blood thirsty monster, Ulysses boldly plunged a red hot stake into the sleeping monsters only eye who screaming in pain and rage asked who it was who had done that. Ulyses answered that his name was "Nobody". As the cyclops friends then arrived alerted by the screams of their fellow, and asked him who had done this deed to him, that they could avenge him, they received the answer Nobody. Thinking therefore that the Gods had done that to him, and that he was thus responsible for his deeds, they left him to die in his pain.

This story is used as a spring board by the quartet - the 2 philosohpers and 2 guests: Beatrice Weder Di Mauro swiss economist member of the German 5 wise men board of economic affairs, and novelist Bodo Kirchhoff - to look into the question that nobody seems to be to blame, or accepts the blame, for the massive financial meltdown that saw more money evaporate in a year than all the biggest robberies of all time piled one next to the other over the whole course of humanities history. Clearly something went wrong. Something needs to change, some things need to stop, some to die... The point is well made that the bankers that gave themselves such huge salaries on account that they were responsible for the huge benefits they made, seem to have lost all sense of responsibilty in the crisis. What then is it that needs changing? What criteria should be set in to avoid such errors in the future? One proposal - perhaps a very harsh one for all attempts at mergers - is that you should never allow a system to grow to such a level that it cannot fail, or better: never allow a system to grow so that when it is time to ask for responsibility for a crisis, the only answer can be Nobody.

Sunday May 10, 2009

why I bought the Michelin Guide

As the issue of copyrights and intellectual property are moving up the public agenda (see this Economist article for example), I thought I'd write a few posts on what I do buy and work out why I did buy it, rather than say pirate it, to use the emotional term of the day. Let me start here with the Michelin Guide for the iPhone.

The Guide Michelin, as it is known in France, is famous world wide as a very professional database, sold until recently as a book, of the best restaurants in Europe. The Michelin Guide sends highly qualified inspectors anonymously to restaurants to evaluate the quality of their cuisine. They also check the cleaniliness of the kitchens, evaluate the service, the decor, and much more. The result is a reliable guide to restaurant quality.

So why did I spend €10 for the iPhone application for the database of French Restaurants? A search on the internet gives a lot of free restaurant evaluation services. I could have used those instead, right?

It's really all about dating. When you are out with a sophisticated girlfriend, or even on a business lunch, it just won't do to pull out your notebook, and spend 10 to 20 minutes searching on Google through reviews of restaurants, that might have closed a few months ago. It takes a lot of time to sift through open reviews simply because tastes differ massively. To be able to evaluate the quality of a restaurant through online reviews requires assesing the taste of the reviewer from the very limited information available to you from the text -- reviews that could furthermore easily have been faked or sponsored somehow by the owner of the restaurant himself. So when you are on a date or with your wife and she wants a good quality restaurant close to where you happen to be right now, you don't have more than 3 minutes to come up with an answer. You are going to spend easily €30 to €100 on the meal. And a bad meal can spoil a day or a business meeting. So compared to that, what is €10 for the Guide Michelin?

What is important here is that you want quality information here and now. The quality is provided by the inspectors of the Michelin Guide, and the system they put in place to do the tests and verifications. It is confidence in their methodology that gives confidence in their results. Perhaps something similar could be done using crowd sourcing, but I have not yet found such a site, and my guess is that this could be very difficult to put together (not impossible mind you: it is up to Michelin, to keep the cost of their information low enough that building up a parallel database remains uninteresting).

So here are a few reasons I can think of for paying Michelin directly for the information:

  • The information from old guides has no more value. The latest information is what I am paying for
  • by not giving money to the source I'd be reducing my chances of having good information in the future
  • if I got information from someone who did not claim to be using the info from the Guide even though they were, I'd have a lot less reason to believe their results
  • if they did use the info from the guide but sold it to me as a copy that was not respecting the policy of the guide, I'd have reason to doubt the honesty of the company giving me the info, and so of the quality of the information itself - trust is an essential ingredient in an information economy
  • The time it would take me to find a pirated version of the guide, and the nuisance of constantly finding updated versions, would be worth a lot more that €10 of my time.
And I am sure there are a lot more reasons to explain why buying directly from the source is important. In an information economy the current truthfullness of information is key to its value. I will pay for information I need that I can trust and have now.

An analogy with medicine is illuminating here. You can read up in libraries all about a physical problem you may have. But it could take you months to read up about it, and a lot more to get to the point where you felt that you were knowledgeable about the subject: ie that you could diagnose sympotms correctly and prescribe the best medicines for it. If the disease was about to kill you in a few months then you just clearly won't have time to learn. This is how we get scarcity in an information/knowledge economy. The information may be free to reproduce, but tracking the truthfulness of the information is very costly. Learning it takes time. Perhaps we need to replace the notion of the price of a good depending on the offer and the demand for it, with one of the price of a good being related to the accessibility of the good and the need of it. Learning is the procedure to aquire a knowledge resource. Learning takes time, and that has a cost: in other options that are no longer available, for example. Using the knowledge of others is a short cut to having to learn, and the value of this is reflected in its price.

Thursday Apr 30, 2009

The anti-privacy/liberty law named Hadopi

The Hadopi law(en) being voted now in France, constitutes an incredible attack on Freedom of expression and Privacy. It is fascinating to see how a law that gives the state an easy route to invade people's every digital thought is being pushed through, and will very likely be accepted by the French parliament on Monday May 4, 2009.

Parliamentary Maneuverings

The maneuvers of the French parliament here take some work to understand. A few weeks ago Hadopi was rejected in the Assembly by 21 votes against, 15 for. For an Assembly containing well over 300 deputies, and for a law of such importance, it may seem odd that so few people were part of the discussion. The best understanding I have of this is that President Sarkozy, has made this a very personal issue, having promised to a lot of big media friends, with which he is very close, to put in place a system to break the problem of "piracy" on the internet. Anyone in the majority who may have been tepidly against the law, may not have wished making such a powerful enemy. Others may have thought the law was a done deal given the backing. And sadly I think most of the deputies don't really understand the issue at all, as reveled by this video asking deputies what p2p is.

The Anti-Piracy law

Having lost the first vote, Sarkozi ordered his troops together to make his majority in parliament felt by having them massively vote for the law. The problem is that the majority voting now have very little understanding of the technical issues in front of them. Their view of the issue is the one a large part of the French population have: this is simply an issue of being for or against the Pirates; being for or against the artists. "Piracy is theft" is the simplifying drumbeat which organises their thoughts.

Coming to the defence of artists is of course a very noble thing to do. I myself try to stay as clean as possible in that regard, favoring works that are clearly licensed openly. Most work I publish under very free licences, that make it close to impossible to pirate my work. This article for example is published under a Creativce Commons attribution licence. In any case I find it much easier to buy or rent DVDs than to search for content that may be broken on some other p2p network.

What the best way to defend artists is, and how to find ways of rewarding their work is a complex issue. For the past 50 years people have mostly accepted electronic work to be freely available via the radio or the television -- if interspersed with advertising. I don't want to look into this problem here. For some good ideas one should read and listen to Lawrence Lessig speak on the issue of copyright and the future of the network, or the French economist Jaques Attali write about 10 steps to solve this problem.

The Anti-Privacy/Liberty Law

However noble the issue of saving artists is, the real problem is how this law intends to go about doing what it set out to do. And if one looks at it this way, one soon gets a bad feeling of having entered a Orwellian 1984 like world! (See the public letter "Sci-Fi Against Hadopi") The law is not just anti-piracy, it is also anti-privacy, anti-freedom of expression, anti-freedom of all sorts. It is like a super DDT, a chemical that gets rid of all insects, but is so powerful that it also starts killing humans too.

The Hadopi law (pdf) will enable a newly established administrative higher authority to receive ip addresses from content owners, and ask telecommunication companies to reveal the owners of that ip address, to whom they will send 2 warning e-mails, telling them that something illegal is being downloaded or uploaded from their network, and asking them to secure this network. It seems that this warning will not even mention the work that is thought to have been illegally transmitted. After the third postal warning the internet connection will be cut off. At that point the citizen whose connection will be cut off, will be placed on a black list, making it impossible for him to seek any other telephone connection. As it will be extremly difficult for him to defend himself, he will then have to accept putting a yet undefined piece of software on his network that will snoop everything he is doing. One motion required this software to also sniff the email communications [ I am not absolutely clear this went through though.]

So in short, private companies will be able to anonymously denounce French citizens, leading their internet connection to be cut off, and then forcing them to install snooping software on their network to prove their innocence! If this is not an extreem invasion of privacy I do not know what is.

To help citizens who want to stay legal find their way around the internet, the Hadopi institution will distribute special labels for clean content. Good citizens will be safe if they don't stray too far from officially approved sites. If this is not an attack on freedom of information I don't know what is!

Where is the resistance?

So over the past few weeks as my concern grew I tried discussing this with a number of people. My initial thought was that an issue such as this would not get through in a country that demonstrates on nearly every issue that comes up. What stunned me was the silence, or the lack of interest in these issues by most people. It is instructive in my view to look at various types of responses I got.

The law cannot be implemented view

A lot of people are convinced that this law cannot be implemented. It is too crazy to be workable. Let us hope and pray that it is! The previous DADVSI law wich had set punishments of €300 000 and 3 years in prison, was so extreemly overwhelmingly powerful, that it indeed was not useable.

But that argument is very dangerous. The DADVSI may not yet have been used, but it may one day be. It is certainly what is spurring the current law, Hadopi, which comparatively seems innocuously kind. It only will ask you to install snooping software on your network. And since it is big brother the State asking this, and most people have no idea of what this implies, a lot of people may very well be frightened into accepting this. In any case it does not matter if it is not immediately applicable. It need only slowly with time work itself into people's lives. If enough people have this working, even if it is widely bypassed, then you can bet that in 10 years time, a movement will start where people who do have this installed will complain that some of their fellow citizens don't have it, and so push for harsher laws, perhaps going so far as to install this automatically on all networks.

We can bypass it

A lot of technically savvy people have convinced themselves they can bypass this easily.

So what if they do? The law need only frighten the majority into behaving a certain way. With time, and with the majority on their side, they can add other laws to make the undesirable behavior a lot more difficult. For example for those who think that anonymising software is going to be an easy way out, then they should look at the next law on the table: Llopsi which will give the State the power to block any IP address they need to. Now perhaps a good use case for Llopsi will be large anonymiser services.

Not fighting a law because one decides one will not follow it, is a very selfish and short term way of thinking. Sadly it seems to have grown in a large portion of the population that allowed itself to be tagged as Pirates. And for that selfishness we will all pay (yes, this is not just a French phenomenon, it seems to be a globally orchestrated movement - see for example blackout europe.)

It will be blocked by the constitution

It may be. But then it may not be. In any case it is extreemly worrying that a law should have to go so far as to require blocking by the constitution. Remember how Lawrence Lessig's attempt to get the Supreme court to change the provisions on copyright? It failed.

It will be blocked by the European Union

The EU is a Union of States, where the states have an overwhelming power. The EU does not have an army and cannot enforce much. France has the "cultural exception" it can use quite easily, and it may also be that similar problems are brewing in the rest of europe. Don't count on the EU. The parliament have done a great job there, but they don't have the final say, and they can be pressured. They have just watered down the telecom bill for example. The EU is not the USA.

The people will rise

This is unlikely given what I have seen. Many people don't yet really feel the power of the internet. They work with the internet via the expensive and limited cell phone networks, if at all. For them the Internet is cool, but not essential. Furthermore traditional media are still extremely powerful, and they can direct the message the way they wish. If they were not so powerful, laws such as this would not ever be able to go so far. I don't watch enough television to be able to tell if both sides of the debate here have been aired equally. My guess is not. [ Update: the major French television channel TF1 - the first french TV channel to be created, now privatised - was found to have sacked the head of their innovation center, for having sent privately a critical message on Hadopi to his Member of Parliament as reported by Libération. Thereby confirming the suspicion that other sides of this debate are not getting equal airing time]

But in the long term the people may very well rise. If the law were applied equally and without discrimination then businesses may very well be the first to rise up -- and leave. Later as the internet does become more and more part of every day life, the people themselves may rise. Most likely the younger generation will feel most strongly the difference between what is being asked and what is reasonable. They may feel these new chains most forcefully. Mass movements though are worrying, because when masses move, they can end up being very difficult to control, and can easily go the wrong direction.

All in all I think it would be much better for people in France to call their deputies before the law passes and urge them to change their mind, than to wait and fight this out on the streets.

Vote

There are a number of ways people can get their voice heard. One is the twitition petition. But I don't like the way it requires your password. Better I think to add the string JVoteContreHadopi to a blog post or tweet of yours. After a little time the vote should appear on this Google query where the votes can be counted. (We did this for when voting for Java 6 on OSX leopard.)

Wednesday Apr 15, 2009

Hadopi, a serious danger to French competitiveness

The last minute provisional rejection of the HADOPI law in France last week (it will go back for a vote on the 29th April), has given a new life to the debate here. The law, which is perhaps best explained on the French Wikipedia page, will give if passed, the power to Copyright holders to point out infringing ip addresses to a new higher authority (HADOPI) which will have the power to cut off internet connections after 3 warnings.

There are a huge number of privacy issues here, perhaps best illustrated by the possibility of someone using a p2p network to send themselves a copy of their legally purchased content. Furthermore as it is extreemly easy to infringe copyright - as the Baby dancing to Prince video case illustrates - this law will create a background atmosphere of fear which will have serious consequences on the ability to create new services.

This fear will lead outfits - cafés, libraries, hotels - that provide public access points to the internet, to demand some white list of acceptable content providers which they can allow their users access to without the danger of being cut off. The creation of such a list is extreemly expensive: certainly a lot more expensive than the profits the copyright holders may have gained by selling content to penniless teenagers. (Those of us that do have money, are happy to pay for the quality guarantees provided by pay for services. I'd rather pay a few $1 than be interrupted in the middle of a pirated movie by missing scenes, badly recorded music, or porn...). So there will be no justification to pour a lot of money into very complete white lists. Getting added to such lists will be a time consuming political game.

As a result startups that come up with new innovative services, being low budget idea driven companies, these will of course not have the money to play these advanced political games. Starting up in France will therefore be difficult or impossible. With much larger markets abroad - in the USA for example - the path to growth there will be clear. When these startups have then turned into billion dollar US companies, they will find it relatively easy to pay for the HADOPI political game and return to France. A loss to french entrepreneurship nevertheless.

This is not the first time this happened. Something similar happened with cryptography in the 90ies. France by severely restricting the strength of its keys, handicapped all of its ecommerce industry in the competition with the US, whose citizens were allowed to use any strength they wanted to. These laws were repelled in 1999 after much damage to its industry. Freedom is not just a cultural issue of fundamental importance. It is also the life blood of a dynamic economy.

Notes

  1. The above are my own opinions, and not those of Sun Microsystems.
  2. This article is published CC attribution, as all other articles on this blog. Please feel free to copy and translate. I do in fact read, write and speak french fluently, but my french spelling and grammar is just too rusty from lack of use, that I did not want to impose this on my readers

Wednesday Jan 21, 2009

Outline of a business model for open distributed social networks

illustration of SN data silos by the Economist

The organisers of the W3C Workshop on the future of social networking had the inspiration to include a track on Business Models. What would be the interest of large players to open up? to play ball in a larger ecosystem of social networks? What would the business model be for new entrants? This question clearly was on many of the attendees minds, and it is one I keep coming across.

First without Linked Social Networks there are a lot of disincentives to create new web services. This is because users of these services need to duplicate the data they have already created elsewhere, and also because the network effect of the data they are using is bound to be much smaller. I have found myself uninterested in trying out many new web 2.0 offerings for just these reasons. It is much more rewarding for developers to create applications for the Facebook platform for example, where the users just need to click a button to try out the application on the data they are already using, and that may yet enrich this data further.

Open Secure Linked Social Networks, such as that made possible by foaf+ssl, give one the benefits enjoyed by application developers of the closed social networks but in a distributed space, which should allow the unleashing of a huge amount of energy. Good for the consumer. But good for the big network players? I will argue that they need consider the opportunities this is opening up.

First of all one should notice that the network effect applies just as much to the big players as to the small ones. A growing distributed social network (SN) is a tide that will lift all boats, and since metcalf's law states that the value of the network grows exponentially with the number of nodes in it, then doubling the number of nodes in the network may just quadruple the value of the network to all. Perhaps the big operators are thinking that they control such a large slice of the market that there is not much doubling that they can do by linking to the smaller players. As it happens most social networks are geographical monopolies, which would go to strengthen that point of view (see slide 8 of the opening presentation at the W3C workshop). [ Nothing stays still, and everyone should watch out for the potential SN controlled by the telecoms.]

But the network effect applies to the big players also in another way. Namely that if they wish to create small networks then the value of those networks will be just as insignificant as those of other smaller players. So let me take a simple example of very valuable smaller networks which have a huge and unsatisfied demand for social networking technologies and the money to pay for tools that could help them quench their need: companies! Companies need to connect their employees to their managers and colleagues inside the same company, to knowledge resources, to paychecks and many other internal resources such as wikis, blogs, etc... Usually companies of a large enough size have software to deal with these. But even in a company such as Sun Microsystems, that is relatively large, the network effect of that information is not interesting enough for people to participate gladly in keeping the information up to date. I often find it easier to go to Facebook to find a picture of someone in Sun. Why? Well there is a very large value in adding one's picture to facebook: 200 million other users to connect to. In Sun Microsystems only 34 thousand people to connect to, and it is true a financial incentive. Clearly the value of 200 million squared is larger than the incentive of being efficient at work.

One thing is clear: it is impossible to imagine that such large software companies can allow their employees to just use the closed SN sites directly to do their work - I mean here: have all their employess just use the tools on facebook.com for example. This would give those SN companies way too much insight into the dealings of the company. Certainly very large sections of industry, including defence contractors, large competitive industries such as car manufacturers, and governments, cannot legally and strategically permit such outsourcing to happen, even though the value of the information in such a large network would be astronomically larger. In some case there are serious privacy and security issues that just cannot be ignored however attractive the value calculation is.

So large SN players would have to enter the Fortune 1000 with Social Networking software that did not leak information. But in that case they won't be in any seriously better position than the software that is already in there, and they won't be able to compete any better than any of the smaller companies that are working in this space, as they will not find it easy to leverage their main advantage, namely the network effect of their core offering.

And even if they did manage to leverage this in some ways, they would find it impossible to leverage that advantage in the ways that really count. Companies don't just want their employees to link up with their colleagues, they need them to link up with people outside their company, be it customers, government agencies, researchers, competitors, external contractors, local governement, insurance or health agencies, etc, etc..... The list is huge. So even if a large Social Network could convince one of these players of the advantage of their offering, they will never be able to convince every single partner of that company - for that would be to convince the whole world. Companies really want global SN, and that is what Emergency Response teams really need.

To make such a globaly linkable platfrom a reality one needs to build at the level of abstraction and clarity at which the only such global network in existence is built: the web itself. By using Linked Data one can create distributed social networks where each player can maintain the information they feel the business need to maintain. With the very simple foaf+ssl protocol we have the lightest possible means to build security into a distributed social network. Simplicity and clarity - mathematical clarity - is essential when developing something that is to grow to a global scale.

Companies therefore that work at providing tools for distributed social networks, will if they play well together, find a huge opportunity opening up in front of them in helping enterprises in every industry segment link up their employees to people in every walk of life.

Wednesday Oct 01, 2008

Historical perspective on the 2008 crash

Dr Martin

In July 2006, Dr David Martin gave a talk: "Asymmetric Collateral Damage, Basel II, the Mortgage House of Cards, and the Coming Economic Crisis" (with audio) where he gives a historical perpective on the 2008 crash he predicts with remarkable accuracy. He starts his story the Battle of Waterloo that made the fortunes of Baron Nathan Von Rothschild, in a little known speculative episode at the end of the war. Moving on to the coming introduction of the Basel II banking reform, and describing quickly what we now know the be the very dubious lending practices of many institutions, he goes on to predict the coming of a spectacular clash in 2008.

His talk is very lively and entertaining:

Now, I'm not going to point fingers at, you know, Treasury secretaries or anybody in that kind of environment. Seriously, I'm not pointing fingers. I'm just saying we did a very interesting thing. We decided that we had a very dynamic need in 2001 to get our economy back on track. And so, what we did was, we poured a significant amount of capital into what market? What market in 2001 wound up contributing to the majority of the growth of the GDP in 2001? What market?

“Housing.”

Housing. Ninety percent of the growth of the GDP in 2001 to 2002 was in the housing market… 90 percent. Did we all get, like, castles? Are we Europe? I mean, did we all, like, move into castles in 2001? This is bigger than 86 percent, isn't it? Did we do that? What did we do with that alleged housing market money?

A little further on he ties this to the current election.

Something happened last year. I don't know if any of you were watching, but something happened last year for the first time since 1933. Does anybody know what significant financial function happened last year?

(Comment from audience.)

Not only inverted growth but for the first time since 1933, and that's true. For the first time since 1933 something very interesting happened. We actually went negative in savings. Negative in savings. We had a four percent… in one calendar year, a four percent reduction in savings.

...David Ferren and I were very interested in looking at historical default rates. And we were looking at different types of credit and different types of defaults. And one of the things we were looking for is whether or not default rates happen in normal curves. Whether you're as likely to default Month one as Month 12 as Month 24, as Month 36, as Month… and you know what? It's not very linear. Debt actually looks like it works really well for about 14 months. And if you look past 14 months and you go out a little further and you go to about 17 months, you actually find out that debt starts feeling a little squirrelly.

That's when you start not making your payments. That's where you get into things like technical defaults and these kinds of little bumps in the road. You try to make a payment. You can't make a payment. You can't this, you can't that, and so on. But somewhere between the 17th month and the 24th month, all of a sudden, the fecal matter hits the rotary oscillator and it's bad. Everything that looked like a good credit starts to look like a bad credit.

So let’s see… Christmas of 2005, January of 2006 is, kind of, when we over extended our credit. So let's see, 17 to 24 months would put us in January 2008, wouldn't it? The day that banks have to report their capital adequacy happens to be that magical day when a new president gets sworn in. Oh, hold on a second. That actually was kind of funny, wasn't it? Ladies and gentlemen…

Having predicted the coming crisis he explains how the US should be prepared to have to go begging for money in the countries where there is a lot of cash. As a large number of these countries have lending policies linked to Shari'ah law, linking lending to moral precepts - not necessarily those of the US - this was going to lead, he claimed, to some pretty difficult times.

I had found this talk on Nova Spivack's blog. Dr Martin certainly had the event and the time right. Is the explanation also correct? The current debate one finds on TV on these issues seems very superficial.

The Economist has also been going on about the mortgage crisis for a long time. Some people clearly were not listening... Another case of SEP?

Saturday Sep 08, 2007

the limits of a free flickr account

I took some time, but I just hit one of the limits of my free flickr account. Here is the message I am seeing at the top of my account:

You've run into one of the limits of a free account. Your free account will only display the most recent 200 photos you've uploaded. All of your photos beyond 200 will remain hidden from view until you either delete newer photos, or upgrade to a Pro account.

None of your photos have been deleted, and if you upgrade, they'll all come back unharmed.

To get a pro account I need to shell out $24.95 per year. This is not unreasonable, but it is making me pause and think how much I want to continue with this service...

What are the alternatives? Well I have my own server at bblfish.net. I am already paying for that service, so I might as well use it more fully, and upload my pictures there. But pictures take up quite a lot of space so this is not going to end up being cheaper, as it will use up more space and force me at some time to either increase the space on my rented server or even buy my own server. What would I get for that price? I would certainly get more control over my work, but at the cost of more work on my part. Publishing photos could be done simply with an improved BlogEd, which can push those photos to the file system. This would make publishing easy, but would not give me the interactive collaborative features of flickr, where people can directly add notes to the pictures, tag them, etc... Adding that functionality is not a huge amount of work, but it makes maintenance of the service more difficult, which means costs in developer time, which has to be paid somehow too...

What is the price of freedom? Owning your content at URLs you control may long term be worth quite a lot, a bet Tim Bray clearly is making, by hosting everything on his own server...

Monday Aug 20, 2007

Purple Ocean Strategy

A few weeks ago I read through "Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant", By W. Chan Kim and Renée Mauborgne of the Insead business school. This book has sold millions of copies since its publication. It is very easy to read, and contains a lot of clear and entertaining business cases by way of illustration, from the growth of the Cirque du Soleil via the story of the turnaround of crime in New York under the leadership of Bill Braton, all the way to Apple's phenomenal success with the iPod.

The Blue Ocean the book refers to is opposed to the Red Ocean of competition in well established markets where optimization and distinction on well understood, standardized criteria matter. The Blue Ocean stands for the new markets created by businesses where there are no predefined standards, no predefined audience, where no industrial feet have yet been placed; in short the sought after space where there is no competition, where huge fortunes can be made. One of the very nice things about this book is how it shows just how much the blue ocean markets can be created in every walk of life, not just where one expects it the most, in technology driven industries.

The aim of the book is to show how these oceans of innovation are created. The tools it develops to make it possible to understand this are very easy to grasp, and make a lot of sense. One point it makes, and that every creator knows, is that you cannot find a Blue Ocean by asking your customers what they want, or by doing simple market studies. Of course these spaces are created by responding to something people really wanted, and feeling for your customers is an important aspect of seeing new possibilities emerge. But the business owner, the entrepreneur - as opposed to the manager ( the book does not make this distinction ) - is the creator of a new value space which cannot be comprehended by the market ahead of time. More so even since by creating something new, the entrepreneur is redefining the boundaries of the established market, and so redefining the audience. The Cirque du Soleil for example changed both the definition of what a circus was and what theater was. In doing that the Cirque du Soleil became a competitor of not just theater and circuses, but also other night time activities people might have enjoyed in their place. The Cirque du Soleil did that but seemed also to appear out of nowhere.

Blue is the symbol of Liberty. The French flag is blue, white and red: Liberty, Equality, Fraternity. Blue in Europe is also associated with conservatism. The history of color associations in the USA is more complex and currently has the reverse association in part due to the stigma attached to the color red in the battle against Communism. Just as with the colors the book presents what are probably very complex ideas in an amazingly simple way. It separates the strands of thought the way a crystal separates light. Like a beat of electronic music it drums these distinctions into the readers mind, so that there is probably no need to re-read the book twice: reading it once is to read it three times. So my following criticism or thoughts will probably be just very facile remerging of what was separated for clarity.

Following the internet and computer industries I have noticed an element of the relation between red and blue that this book fails to make. As our CEO Jonathan Schwartz often mentions on his blog, it is not because one is in a commodity market that one cannot make a huge profit. The electric plug in your house, voltage, wire sizes and many other parts of the electricity industry are standardized. Those are commodity markets. Yet companies like General Electric or Siemens that produce huge generators for large dams or other electrical installations are in some very profitable markets. Without the standardization of the plugs and voltages, the electricity industry could never have grown so big. Standardization I have noticed, can be a stepping stone to building a Blue Ocean, the blue can build on the red.

To illustrate let me take one example from the book: Apple's huge success in recent years. One of the conceptual tools put forward by Blue Ocean Strategy, is that one has to create a new value curve. Remove some aspects of cost and value from a product (no animals in the Cirque du Soleil), change other aspects of value (price), create something new (artistic dance show). One way Apple reduced cost was by adopting open standards. By building on the Unix Operating system developed and used in Universities world wide they removed the major research cost of developing an Operating System whilst gained a huge pool of ready and highly qualified experts worldwide, and all the software that had been built in an Open Source way over time. The default compiler of OSX is Gnu CC. Think of the huge cost reductions that flow from being able to build in such a way on the works of others. By adding the one thing that had been missing from that system, an artistically coherent and beautiful end user experience, Apple gained those people's hearts and support and gave them a unique value proposition, bringing a very important community to Apple that would never have touched it before. By building on these open standards Apple also brings value to the community, if only in the existential example that it can be done, but certainly also over time in feeding back the improvements to the community. Simon Phipps explains how this works in full detail in "The Zen of Free". The same forces at work also lead Sun Microsystems down a similar path to its logical conclusion: by Opening up all of the software stack. As a result Sun and Apple are able to cooperate in numerous ways that would otherwise have been impossible. By working on a standard base Apple can gain award winning technologies such as ZFS at very low cost, allowing it to focus on differentiating itself where its user base's value is: simple packaging, beauty and fluid end user experience. Apple's switch last year to Intel is a similar move, building this time on an industrial de facto standard.
In all these cases reducing costs is not removing something completely from the system as proposed by Blue Ocean (removing the lions), but building on the commoditization and standardization of one layer, thereby bringing the costs down to close to zero. Building on the Red Ocean of community ownership a Blue Ocean of innovation and creativity, in a way that respects the value of the Red Ocean, is what I would like to call here, on my little blog at the end of the universe, Purple Ocean Strategy.

Having gotten this far it may be necessary to enlarge the notion of what is Red all the way to Green. If Red is what is socially established, fraternal ownership, then further along there is what is common to all living things, the biosphere, the Green. A strategy that took this into account would be looking for how to use and build in a sustainable way on that space. It is clear that not taking this into account can be extremely damaging, as the unfolding drama of Beijing Olympics is revealing. How to take it into account effectlively, may get us to the Turquoise Ocean Strategy.

Monday Jul 30, 2007

Cognitive Capitalism

After visiting the Louvre on Saturday, I wandered into a bookshop and picked up a book called "Le Capitalisme Cognitif, La Nouvelle Grande Transfromation", by Yann Moulier Boutang, which would translate in English into "Cognitive Capitalism, The Next Great Transformation". The book has a good section on the GNU/Linux free software movement, which must be unusual for a book on economics and so cought my interest. Better still it claimed to put forward a theory that would explain the emergence of such a phenonmenon. I was sold, and spent the rest of the weekend reading it, proving the point that the cognitive economy knows no 35 hour boundaries. When you find something interesting how can you let go?

According to this book we need nothing less than to postulate a third stage of capitalism, starting 1975, following the two previous stages which were the mercantilist stage which led to slave trade, followed by the industrial stage of which the car and Charlie Chaplin's Modern Times are the symbols. The transformation of the economy by the Just in Time production Techniques (The Machine that Changed the World), the advent of computers and then the internet, moved industrial capitalism to a position of having to value knownlege more and more heavily. Whereas the industrial revolution fed off the movements of illiterate peasants into towns, and so emphasized the simplicity of repetitive tasks (Ford was proud that it would take a week to at most a month and a half to teach someone the ways on the assembly lines), so the cognitive revolution spurred by diminishing returns of mass produced goods, the breaking up of markets into ever narrower micromarkets and pulled by the power of computing and the network, is requiring people more and more to make decisions depending on knowledge accumulated in networks.

With a lot of very interesting references back to literature I am only superficially aware of, quoting the economic thinkers from Adam Smith, Marx, Keynes, Adorno, building on commentaries by Lawrence Lessig and Eric Raymond, there is no doubt that the authors are serious about their subject. Placing Open Source and the Free Software movement at the center of this revolution plays well to my prejudices. The French was at times hard to read for me, who am not used to the economics language, and the point of view definitively a bit local at times.

But there is something oddly missing in the book that reaches sometimes right up to some recent news (such as a couple of gaffes made by Sarcozy during the election campaign), and that is that there is absolutely no mention of Open Solaris or for that matter of Apple's open sourcing of their OS a few years ago (with some recent worries it is true) . The only thing that is taken from the Open Source movement is the free source movement, and the lesson taken from it is that open exchange of knowledge produces better goods than closed proprietary ones, and most of all that they are free. But detailed analysis of these ecosystems would be useful. How did they emerge? What is the interest in Standard Operating Systems (Unix), to start off with? How did the crowd of GNU/Linux developers finance their work? Why is there work at all in this space? These are real questions, and I have heard many interesting ideas and views on their answers. The answers will be complex, just as the explanation of why ants build their nests the way they do, and how that relates to the ecology of the forrest surrounding them. In the OpenSolaris case we know Jonathan Schwartz's answers: "There are two types of people, those that must pay and those that won't pay". Those that must pay are those that need liability coverage. They have other businesses to run, and they pay Sun for the guarantee that things will work well. It is just the continuation of the logic of outsourcing. Those that don't pay are researchers and other institutions that increase the value of the platform by using it, providing feedback and enthusiasm.

So the conclusion of the book which makes the jump from the power of free to the unsustainability of free without revolutionary government intervention, which certainly feels like a very French idea, is not at all convincing. The last chapters of the book are thus very dissapointing. As I read them I suddenly had the feeling that the whole previous thesis was built up later in order to defend the pre-established conclusion, increase and further the minimum salary to every branch of french society. An interesting idea, but that is a hell of a jump to make. Where did it go wrong?

Well for one I think it is clear that Open Source has found a way to sustain itself in a capitalistic economy, and it can only do this if those contributing are getting rewarded in some way for what they are doing. That one should find ways to improove the incentives of developers and contributors will clearly be in the interest of the firms that are building their reputation on top of them. So the question is how can firms develop on top of something free? Ask that to the bottled water salespeople. The amount of knowledge we can accumulate is it is true, as opposed to petrol for example, clearly limitless. But the amount of live knowledge and organisational knowledge humans can have is limited to the amount of brains in existence, complimented by computers of course. Now brains take time to grow, and thought take time to emerge. You cannot build a kernel engineer in a couple of weeks, a couple of months or even a couple of years. Neither is this a skill that comes as naturally as say going to the cinema, so there is not a large pool of such people around. Furthermore the world is constantly changing, and code is dead knowledge. There is always a need to adapt the kernel to some new device, add some improovemeents, or make some other changes. Finding the people that make the right changes is not going to be easy. Finally there are only 24 hours in a day, and even hackers can't be working all the time. The attention economy does no apply only to consumers. Developers themselves only have limited attentions. Paying them helps alleviate other problems they may have, such as finding food. In the end therefore demand for their services should create a sustainable ecological space for their work. And so for the rest of Open Source. If governments have a need for it, such as because they want the computers running their armies to be run by software understood by their own engineers, and that they can only get those if those courses are studied at Universities in a free and open way, then governements will and should contribute, as indeed they do. Indeed it could be argued that this is one of the largest forces behind the birth of Unix.

So it is not because software is free that nobody will pay for it, and so the argument in the last part of this book collapses pretty badly. But that we have entered a new world, very distinct from the Fordist era, that I am in no doubt.

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