Customer vs. Commodity and your grandmother’s underwear

June 27th, 2013 § 0 comments § permalink

Most of the major internet companies have been releasing statements playing down their involvement in the NSA Prism scandal that broke couple weeks ago. For their part I think these companies would like nothing more than to not be involved with the NSA but since warrants are involved they don’t really have much choice. This has lead to some non-denial denials saying that they have not given the NSA unfettered access to their servers. If the scale of access ranges from zero to complete we are left hoping it was closer to zero but we will probably never know.

The problem, in my opinion, is not how much access these companies gave to the NSA. The problem is the fact that they store the data in the first place. Companies that make their money from advertisers (Google, Facebook, Yahoo, Twitter, basically any company that provides “free” web services) have no choice because the more personal data they have about their users the more they can charge advertisers. Their users are the commodity and advertisers are the customer. Contrast this with a company who’s users are also their customers and you have a very refreshing statement about the NSA’s spying program.

An excerpt Apple’s commitment to customer privacy:

For example, conversations which take place over iMessage and FaceTime are protected by end-to-end encryption so no one but the sender and receiver can see or read them. Apple cannot decrypt that data. Similarly, we do not store data related to customers’ location, Map searches or Siri requests in any identifiable form.

Apple is not doing this because they are morally superior to the Googles of the world. They are not doing it because of some mealymouthed corporate tagline about not doing “evil”. They are doing it because it’s in the best interest of their customers just as Google is storing massive amounts of personal data in the interest of their customers.

Marco Arment had a great analogy for how he treats a customer’s personal data. He was talking about accessing a user’s contact book from Instapaper and he compared it to his grandmother’s underwear drawer. To paraphrase Marco

Imagine your grandmother is in the hospital and she needs you to get an important document from her house. The only problem is that it’s stored in her underwear drawer. You are, of course, going to do what your grandmother asks but you are going to do it as quickly as possible. Open the drawer remove the document and, if possible, leave the rest of the contents untouched.

He made this comment in the wake of the Path address book controversy but I think it should be an attitude shared by all developers. Apple doesn’t store your iMessages because they don’t want the liability. Google reads your jabber messages so they can get a better sense of who you are and what ads you are more likely to click on. To abuse the analogy they would be happy to catalog your grandmother’s underwear drawer for you. BTW, she might like this special offer from JC Penney’s.

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China and Japan edge closer to war | The Economist

January 17th, 2013 § 0 comments § permalink

I’ve always felt US China relations would always be peaceful as long as we remain as economically intertwined as we are. The brewing conflict between China and Japan might change everything though.

This week senior American officials rushed to Tokyo to urge caution on Shinzo Abe’s hawkish new government. America is obliged to come to Japan’s aid if it is attacked, and being sucked into a conflict with China is almost too unbearable to contemplate.

The two countries appear locked in a finger-pointing game and it’s unclear if anything short of ceding control of the islands to China will mollify them.

China seems unwilling to entertain other perspectives or interests. The sources of this chauvinism are not entirely clear. It may be that the government is responding to the ultra-nationalist sentiments that people increasingly give voice to on the internet.

The Economist is even drawing comparisons between the current China stance and the climate that saw Japan wage war across east asia during World War II.

East Asian parallels from a century ago are hard to ignore. Then, as justification for continental expansion, a bullying Japan drank from a dangerous brew of nationalism and a manufactured sense of foreign aggression and victimhood. As China pursues a policy of maritime expansion, the rhetoric of victimisation is remarkably similar. The coming clash that China now talks about could be as calamitous as that previous one was. It would imperil not just China’s but the region’s peace and its momentous economic advances.

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Cocaine Cowboys Know Best Places to Bank

August 10th, 2012 § 0 comments § permalink

Jonathan Weil, writing an opinion piece for Bloomberg, makes an interesting link between “too big to fail” banks and criminal activity.

Except we have this mutant species of corporation called too-big-to-fail banks whose collapse might wreck the global economy. No financial institution in the U.S. can survive a felony indictment. So these companies have become un-indictable, creating a perverse nonchalance regarding financial crimes. In 2010, Wachovia paid $160 million to settle criminal allegations of laundering Mexican drug money. By then the bank had been bought by Wells Fargo & Co. (WFC), and the Justice Department let it off with a deferred-prosecution deal.

Perhaps this helps to explain the seemingly unending stream of corruption stories emanating from Wall Street. Perhaps being Too Big to Fail not only ensures an endless stream of cheap money but implicit immunity from prosecution.

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Obama Was Right: The Government Invented the Internet

July 27th, 2012 § 0 comments § permalink

Farhad Manjoo writing for Slate has so many great quotes it was difficult for me to choose. I went with this one because it tied in so nicely with my last post about the CARD act.

In other words, creating something as grand and untested as the Internet was something that a private company simply couldn’t do. The project was too big, and the payoff too uncertain. That’s true of most technologies in their infancy. The Army created ENIAC, the world’s first general-purpose computer—and only after the military proved the basic idea was sound did IBM jump into the business. Apple began working on a multitouch interface in the 2000s, but that was only after decades of research at other labs, including by many researchers funded by the government. The American military developed and launched the network of satellites that form the Global Positioning System—and only then could tech companies come along to make spectacular use of that system.

In my youth I flirted with Libertarianism1 but have since recanted. I have never heard a reasonable market based solution for environmentalism or large-scale public works projects like the highway system and the Internet.

Having been raised in a family that has a deep respect for NASA has certainly left me with a bias. I grew up believing that NASA had accomplished something that no other private, or for that matter public, entity could. It landed people on the moon and brought them home safely. Projects of this scale can not be measured in year of year growth and are therefore not something we can expect from a private company. I’m very happy to see SpaceX stepping in to make access to low earth orbit dramatically cheaper. But make no mistake; SpaceX would not be here if it were not for advances made in the public sector. While private companies might start mining asteroids don’t expect them to be the first to land humans on Mars.

  1. The American version of libertarianism []
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Are banks benefitting from CARD Act they lobbied against?

July 27th, 2012 § 4 comments § permalink

In a shocking of turn events the dire warnings of “the end of plastic”, trumpeted by the credit card lobby before passage of the CARD act, did not come to pass.

Card issuers have returned quite robustly to profitability since the credit card act went into effect. None of the predicted consequences ended up coming to fruition. They’re really much better off now than they were before.

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The Facebook IPO: Shareholders Weren’t Invited to the Real Party

July 24th, 2012 § 1 comment § permalink

Matt Taibbi writing for Rolling Stone.

His point was that virtually every week now we see stories like this that hint at a kind of two-tiered market system – in which most of the real action takes place inside an unregulated black-box network of connected insiders who don’t disclose their relationships or their interests, while everyone else, i.e. the regular suckers, live in the more tightly-policed world of prospectuses and quarterly reporting and so on.

A few years ago I might have dismissed something like this as a crackpot conspiracy theory but when large banks collude to manipulate the LIBOR rate I can no longer dismiss such fears. Though not well known outside of financial circles the LIBOR rate “is the primary benchmark, along with the Euribor, for short term interest rates around the world.”. [emphasis added]

Planet Money’s coverage of the scandal shows the brazen manner in which the traders at these banks broke the law. There is an unambiguous email trail that speaks to an environment that doesn’t just tolerate but encourages corruption.

I think The Economist is right in calling for a dramatic increase in fines for financial wrongdoing. The rate that these stories are coming out suggests a cool calculus that determines the risk in fines is less than the potential gain in profit and therefore worth the risk. Lets use market forces to clean up the system by making the risk not worth it.

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Conservative Policies in Europe are threatening the World Economy

June 7th, 2012 § 0 comments § permalink

Three months ago I was pretty confident that America’s economic recovery would take hold by November and allow Obama to defeat Romney. In an ironic twist the conservative “starve the beast” attitude towards government in Europe, and trumpeted by Romney, is threatening to undo the hard work that has been done to get us out of a very deep recession. The Economist’s warning is not subtle.

The European Union, the world’s biggest economic area, could plunge into a spiral of bank busts, defaults and depression—a financial calamity to dwarf the mayhem unleashed by the bankruptcy of Lehman Brothers in 2008.

If you think such a disaster would not send the entire world into a tailspin then I suggest you bone up on some history. Perhaps America’s Housing Collapse circa 2008? The Economist doesn’t shy away from placing blame either.

Throughout this crisis, [Germany's Prime Minister Angela] Merkel has refused to come up with a plan bold enough to stun the markets into submission, in the same way that America’s TARP programme did.

That’s right, the socialist rag rationally conservative magazine The Economist is calling TARP bold while criticizing Merkel’s government austerity. Lets put up a score board shall we?

Conservative Policies vs. Liberal Policies
De-Regulation vs. Regulation
Lehman Brothers &
Worldwide Economic Collapse
Goldman Sachs Pays $550 Million1
Austerity vs. Keynesian Economics
Euro Crisis America’s recovery2

By my, admittedly biased, count that makes 0 for 2 for the economic school of thought that Romney hails from. Yet despite that Obama is getting blamed for not getting us out of an economic disaster fast enough. What a bastard.

  1. Chump change to be sure but it was a record setting fine. It’s also very hard to prove that Regulation is working since when it works, things go smoothly. []
  2. Yes it’s slow but takes time to crawl out of something so deep []
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Rival versions of capitalism: The endangered public company | The Economist

May 17th, 2012 § 0 comments § permalink

The Economist makes a compelling argument for a the publicly held company as an institution for the public good.

First, public companies have been central to innovation and job creation. …. IPOs provide young firms with cash to hire new hands and disrupt established markets. The alternative is to sell themselves to established firms—hardly a recipe for creative destruction. Imagine if the fledgling Apple and Google had been bought by IBM.

Second, public companies let in daylight. They have to publish quarterly reports, hold shareholder meetings (which have grown acrimonious of late), deal with analysts and generally conduct themselves in an open manner. By contrast, private companies and family firms operate in a fog of secrecy.

Third, public companies give ordinary people a chance to invest directly in capitalism’s most important wealth-creating machines.

Clearly publicly traded companies are an essential component of the world economy and we can’t take these institutions for granted.

The number of public companies has fallen dramatically over the past decade—by 38% in America since 1997 and 48% in Britain.

I do wonder, however, about the conclusion they reach regarding the reason for the decline in IPO’s.

The burden of regulation has grown heavier for public companies since the collapse of Enron in 2001. Corporate chiefs complain that the combination of fussy regulators and demanding money managers makes it impossible to focus on long-term growth.

Fussy regulators are an easy target but it’s the demanding money managers that worry me. The emphasis on quarterly and year over year growth is untenable. It’s not longer acceptable for a public company to merely be profitable, they must instead grow. Constantly. Those that don’t grow are punished and this leads to an unwillingness on the part of corporate chiefs to look beyond however long it will take for their stock options to fully vest.

I wish I had a solution for this but I don’t. While I see the sense in The Economist’s conclusion I don’t think it will be enough to protect the IPO.

All this argues for a change in thinking—especially among the politicians who have heaped regulations onto Western public companies, blithely assuming that businessfolk have no choice but to go public in the long run. Many firms now go (or stay) private to avoid red tape. The result is that ever more business is conducted in the dark, with rich insiders playing a more powerful role.

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Why Kodak failed while Fujifilm has thrived

January 19th, 2012 § 0 comments § permalink

There is a great article on The Economist contrasting the seemingly imminent death of Kodak with Fujifilm’s successful reboot. After 137 years of innovation and a long stretch where they enjoyed a near-monopoly in America’s consumer film market Kodak appears to be preparing for a1 has just filed Chapter 11 bankruptcy that few expect them to emerge from. Given the advent of digital cameras I doubt many people are surprised but I think it’s interesting that the Japanese equivalent, Fujifilm, has been able to successfully pivot away from a dying industry.

As the article points out this wasn’t some radical change that caught Kodak flat footed, rather it was a gradual and inevitable market shift that both firms saw coming. In 1979 a Kodak executive penned a report that did an amazingly accurate job of predicting the next 30 years in consumer photography.

It was also certainly not for want of trying. They built one of the first digital cameras in 1975 and tried to mine their deep knowledge of photo chemicals for alternative uses in the drug market. Many were impressed by the venture-capital arm they created as well. Ultimately, however, they were not aggressive enough and they moved too slowly. While Kodak dithered Fujifilm was able to shed its dead weight while it successfully leveraged it’s expertise into new consumer markets like cosmetics and establish a new monopoly in the LCD market by producing screens with wide viewing angles.

Surprisingly, Kodak acted like a stereotypical change-resistant Japanese firm, while Fujifilm acted like a flexible American one.2

In 50-100 years which stalwart companies will find themselves in the same predicament? Will Google fail to move away from search when AI’s are able to mine information better than humans? Will Apple find itself locked out of the emerging wetware computer market that moves computing from our hands into our heads? How will Toyota differentiate itself in Minority Report type world were nobody owns their own car and instead rely upon a nearly identical fleet of driver-less vehicles?

Obviously these scenarios are closer to science fiction than to business planning but I find the mental exercise intriguing.

  1. Looks like the filed for bankruptcy while I was writing this []
  2. From the aforementioned Economist article []
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The end of the Euro could be weeks away.

November 29th, 2011 § 0 comments § permalink

This article from The Economist The euro zone: Is this really the end? paints an austere picture of how things will play out in Europe if Germany and the European Central Bank (ECB) don’t change course, and do it quickly. The worldwide repercussions of such an event would make the 2008 housing crisis look like a practice round for the main event; a 2012-?? global depression.

It has always been a somewhat distant concern but time is running out. Toward the end of January Italy must refinance €30 billion ($40 billion) of bonds which the markets may reject. If the ECB doesn’t step in we could be looking at the world’s third-biggest sovereign borrower going into default.

The Economist argues that to avoid such a catastrophe Germany needs to stop worrying about the moral hazard of taking on the debt of less prudent nations. These countries, they argue, are already on board with austerity measures and the alternative, a Euro collapse, is far to dangerous to risk.

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