I’ve been watching the price of oil lately (what, don’t you do that also?). I just read this on Bloomberg this morning, which implies further declines in the price of crude through 2015. The question is why. Typically we only see this sort of sustained decline in the face of an economic downturn. There’s a lot of subtext that I’m missing here though, and I’m hoping some of my readers can fill in the gaps for me. Continue reading
I just read this article about how Cisco believes that net neutrality rules need to allow for bandwidth shaping.
I believe they’re missing the point entirely.
Right now the issue is that infrastructure owners are playing games with the prioritization of bits, in order to provide leverage for charging tolls to content providers (I’m coining the word “trollboothing“, if it doesn’t exist already, to describe this). The result is a loss for consumers of content, because their internet experience is degraded (sometimes severely). Continue reading
This week, the US Supreme Court struck down the FCC’s ruling on network neutrality, which defines telco companies as common carriers, who are therefore forced to treat all network traffic equally. In theory, this opens the door to things like tiered network access (where certain kinds of traffic get higher priority), or even attempting to bill large web media properties (i.e. YouTube and Netflix) for the traffic which they carry over their network.
I believe that the telcos are unlikely to move quickly on this, and will likely initially do some small (and very quiet) experimentation on a local basis.
The reasons are three-fold – firstly, the FCC may yet respond with an updated ruling that complies with the Supreme Court (this is apparently well within their power); secondly, large experiments run the risk of a massive consumer backlash; thirdly, the ultimate strategic outcome is actually quite hard to predict.
The third item on this list is most interesting from a business strategy perspective. Let’s try to game out some possible longer-term outcomes, shall we? Continue reading
As usual, Elon Musk is keeping everyone guessing. At some point in August, he has said that he is going to reveal exactly what he has in mind for this high speed transit system. There have been a number of guesses about the precise nature of the hyperloop, at least one of them supposedly coming close.
The basic idea has been around since the 60’s – build something like a train, but running inside of a tube, allowing for tight control over the environment that it moves in (and therefore permitting higher velocity). Some of the variations involve a vacuum tube, or pressure differentials to move the vehicles, or magnetic propulsion of different kinds. All of them were ultimately discarded as being unfeasible.
Instead of speculating about the technology (since so many others are doing so already), I just want to share a few thoughts that came to mind about how he might be planning on implementing the hyperloop from a business standpoint.
- Railroad companies tend to trade at a relatively low P/E these days. A railroad already owns significant rights-of-way. In theory, buying such a company could be an excellent starting point. The new hyperloop tubes could be built on elevating columns, above the existing railway lines.
- Safety is going to be a huge factor. How quickly can the vehicles inside the tube be decelerated in case of emergency? How will the system prevent vehicles from piling into each other at huge velocity, if something goes wrong? How will it deal with things like earthquakes?
- My best guess is as follows: this system is wasted on human passengers. Personally, I’d rather take a plane if I’m in a hurry to get somewhere.
- However: this would be an amazing way to deliver cargo quickly – think same-day delivery. Combined with other light-weight distribution systems (i.e. a network of small local delivery vehicles), a trans-continental hyperloop network would allow a small number of warehouses to provide same-day coverage for the whole of North America. Think of Amazon’s grocery experiment in San Francisco, scaled up big-time. Using a large volume of tiny vehicles, with automatic routing, the hyperloop would allow for exceptionally agile logistics, and would enable business models that are currently unfeasible.
I guess we’ll just have to stay tuned for now…
Google Glass is coming, and with it (I’ll bet) any number of similar me-too products from other manufacturers.
Glass is a sophisticated piece of technology, packing many features into a tiny package. It is an expensive gizmo though, even assuming that the actual price point will be significantly lower than the $1500 demo units. And users still need to connect it to a cellphone for best use (i.e. data package), although it can also connect to WiFi directly, where available.
The question I have is that if the user is still going to need a cellphone anyway, why not remove a big chunk of the functionality from the glasses, and rely on the phone instead? In doing so, a competing product could have identical (or at least very similar) functionality at a far lower price point.
All that’s required is a camera, a small microphone, a tiny LCD display, and some method of connecting to the phone (could even be a lightweight fiber-optic cable for high bandwidth and improved privacy). These are relatively cheap components, compared to having a separate device with its own WiFi, Bluetooth and GPS capabilities (not to mention a CPU of its own and fairly substantial amount of RAM – there’s a nice list of Glass’ features on Wikipedia, here).
Where things will really get interesting, of course, are the next generation of devices after…
Editorial note: I know I said I was going to write about other things, but the following point just occurred to me.
The Fed is currently committed to purchasing $88 billion USD per month in assets.
Regardless of whether you agree with their policy, they should set aside a million dollars per month from that amount (which is so small that it couldn’t be represented in the error bars of their purchase) and use it to purchase BitCoins, on a cost-averaged basis, at whatever the exchange rate happens to be on that day. There’s basically no risk for them at all at that small volume, even if those BitCoins wind up being worthless.
Why, you might ask.
Sounds like a silly (even childish) endeavour for so serious an institution as the US Federal Reserve Bank. After all, the entire BitCoin economy is only a billion and a half dollars.
Here’s the thing: at least some BitCoin enthusiasts believe fervently that BTC is going to be a multi-trillion dollar economy some time soon, and will in the process displace fiat currencies. I would be overjoyed if that were to be the case, but I’ll reserve judgement for now.
At the very least, BTC is a very interesting beasty, and it has some exceedingly useful properties in terms of what the Fed claims to be trying to accomplish.
- It would provide a floor for the BitCoin market, in addition to lots of liquidity.
- It would ipso facto allow BitCoin to grow into what it theoretically can become. With major involvement, other big parties would feel more comfortable jumping in, more eyes would be on the markets (theoretically driving out the crooked players), and there would be impetus to build scalable exchanges (and to regulate away the pump and dump nonsense)
- Key issue, from the Fed’s perspective: It would provide a highly effective trickle down effect to places the current stimulus doesn’t reach – many ordinary people on the street mine BitCoin, which would be made more valuable by the purchase; this would also trickle up to a wide variety of hardware manufacturers (some of them niche) as well.
- If (or when) BitCoin finally does become a global reserve currency of sorts, the Fed would have enough of a stake in the market to allow the US economy to still be relevant.
A similar argument applies to all other world economies.
BitCoin has been in the news lately with its rapid rise in exchange value, its huge fluctuations in intra-day value, and the susceptibility of services using it to hacking attacks.
It should be obvious to any observer that a position (in the investment term, not opinion) in BTC is speculative in nature, and carries any number of risks that are hard to evaluate.
In case you didn’t hear, Google just missed on estimates for the quarter. There’s a good analysis on Breakout (here). What it boils down to is that mobile traffic is growing rapidly, and mobile users pay a lot for bandwidth, so are less likely to click on ads.
I’ve written previously that several factors are going to push big tech companies into the telco industry. The exorbitant cost of mobile bandwidth is another one to add to the list.
There is a chasm opening between existing telcos – who make their money selling bandwidth – and manufacturers of mobile devices, who largely make money from their users consuming that bandwidth.
If Google makes money selling ads, and the cost of connecting to the internet via a cellphone prevents users from clicking on those ads, then Google is going to be under pressure to reduce the cost of connecting. A similar factor holds true for Apple and its App Store – yes, you can connect to WiFi from home, but the overall usability of mobile devices improves dramatically if you can use it everywhere, transparently.
I suspect a few things are going to happen:
- More open feuding between device manufacturers and telcos
- Some new joint ventures between them, particularly with smaller telcos (maybe Softbank isn’t crazy?)
- Possibly a big tech company actually buying a telco (although how that would get through antitrust, I don’t know)
- A big push to find other ways for users to connect to the internet.
Stay tuned. It should be interesting.
The following short post contains some medium-term (2 – 5 years) predictions that are completely contrary to what many well-known market analysts think.
As a result, I’m going to put some weasel-words here first:
- I have absolutely no idea what stock prices for any given company will be, in any time-frame.
- My comments below cover a fundamental issue, and barring specific catalysts, may not have any bearing on share prices anyhow.
- The companies concerned could very well adjust their strategies, making my comments irrelevant.
- If you trade based on anything I say, I bear no responsibility whatsoever!
I’m currently rather bearish on large cap technology companies, over the course of the next few years. The technology industry itself will probably do pretty much as it always does – various people will innovate, new products will come on the market, and there will be winners and losers – as always. This pertains primarily to the dozen or so very large, well known technology companies that are well covered by market analysts.
My thesis is as follows:
- The success of Apple has resulted in virtually all of these companies getting “hardware envy”. Examples include Google, Microsoft, Amazon and likely several others too.
- As a result, they’re all planning on building mobile devices, and it looks like many of them are betting the farm on their success.
- Hardware is a very different business to software and services, and it tends to have much larger capital requirements, and much lower margins. It is somewhat like the auto industry that way.
- Mobile devices in particular tend to be sold via telcos, who have significant power in setting prices. Even Apple is discovering that fact.
- Mobile devices are also heavily regulated. Anybody can assemble a PC and sell it, or build software or sell stuff online. The cellphone industry has to work with government regulators.
- The mobile market is currently divided into high end devices that make most of the margins (i.e. iPhone for now, previously folks like Nokia, and possibly Samsung in the future), and low end devices that have razor-thin margins, and require massive volume. There’s deflationary pressure on both markets as well, driving prices (and profits) downwards.
- Pretty much everybody who wants a cellphone now has one. The new device market is currently focused on the upgrade cycle (people tend to get a new phone every 2-3 years or so, unless they’re me), and on moving people with old-style handsets to smartphones. This has been a high growth industry, but I’m fairly sure that at some point it will grow at the same rate as GDP or population growth.
- There’s really only room for a few winners in this market. Ask RIM or Nokia.
Adding this all up: currently the big tech companies do compete with each other to some extent, but they also have niches of their own that have provided them with relatively high margins. The push into mobile is going to turn all of them into direct competitors, with all that this implies.
There are going to be some interesting side-effects.
Many of these companies have been purchasing wireless frequency bandwidth for years. Amazon has recently got into that game, probably in order to be able to deliver better service to their Kindle devices in a fragmented telco market.
I believe that the push into mobile will force many of these companies to also become cellular service providers, largely in order for them to regain control over their own pricing structures.
This is a bad thing.
There’s a name for a company that is a software publisher, a consumer electronics company and a telco: conglomerate.
That word has had unpleasant connotations since the 70’s. Its awfully hard to run a single successful business. Running several different businesses under the same roof, each with their own (very different) business cycles, margins, capital requirements etc is a mug’s game.
Add in the recent run-up in stock prices, partially due to bullish overflow from Apple, and partially due to the flight to perceived safety, plus the resulting lower profitability from this strategy, and I suspect that the result will be a sustained period of poor results for this sector.
What will cellphones and other mobile devices look like in five years time? I’ve been pondering this question for a while now, and this post has gone through numerous iterations.
It would be very hard to determine what mobile gadgets will be like over a longer period, but given the current rate progress (and market adoption), the following points of speculation might be valid in five year’s time:
- The rise of head-mounted displays like Google Glass means that mobile devices won’t need to have large screens (or possibly any screens), which means they will no longer be forced into the flat, rectangular packaging of today’s pads and cellphones. A screenless gizmo that connects wirelessly to your glasses could look like anything – a belt buckle, an old-school Walkman, or something completely new.
- Battery life will no longer be a major concern. Between improvements in batteries that are close to market availability, Apple’s patenting of tiny fuel cells for phones (not sure I’d want hydrogen in my pocket, but anyhow), and several competing wireless energy technologies, I suspect that how your devices are powered will change rapidly in the next few years. This is a good thing. Batteries haven’t changed much in a hundred years, and they’re one of the least reliable technologies in use.
- We’re likely to see more experimentation with input devices. I don’t think keyboards and mice are going “away” just yet, but better verbal input, gesture recognition and other experiments are likely to be available in the market.
- The performance gap between laptops and their smaller cousins will close. New chip technology seems to be focused heavily on power consumption, so it is likely that the types of chips used in mobile gadgets will be similar (or possibly identical) to those used in laptops. One implication may be that fully-fledged operating systems will win out over less powerful, specifically mobile ones. That could mean, for example, that iOS and OSX will converge, and that Microsoft may actually be crazy like a fox. In the longer term, there are still many companies that would prefer to push processing power into “the cloud”, and have mobile devices primarily act as dumb terminals, but I think the short term will see things largely going the other way.
- We may see some new form factors – if most of what you need can be built into a pair of glasses, and only some people need things like more storage, or faster co-processors, there may be a market for small add-on devices that communicate via Bluetooth with a primary device, and that contain things like SSD hard drives, or high-powered GPUs.
- We may see a further move away from cellular technology to “WiFi plus Voip”. I already use Skype and Google Voice more frequently than I use my cellphone’s phone number. If free (or merely very cheap) WiFi becomes ubiquitous, why pay for cellular service? If the ENUM system takes off (it is still largely experimental), you’ll pay a few bucks per year for your phone number (similar to domain registration), and forward it however you want, to whatever devices you wish. I suspect this will further erode the customer base of cellular service providers (to the benefit of companies like Apple).
What does this all mean?
- It would take a lot for me to be able to do serious work from a mobile device. A full-sized keyboard and mouse are rather useful when writing code, or typing up a lengthy document. If my cellphone had a docking station, that might change, but I suspect that (for certain kinds of users) laptops aren’t going away any time soon.
- The companies that will win in this space are going to be the ones that bring the full power of a laptop to this smaller form factor. The ability to do – for example – professional graphic design requires several things: a really good screen, dextrous interface device(s), lots of processor power, lots of storage space, great software, and sufficient battery life to not be tied to a wall socket (although Starbucks is usually helpful in this regard). You can almost do that now on an iPad, and I could imagine a designer in a few year’s time standing in the middle of a park, wearing a pair of Google Glasses and an input glove, and generally looking like they were conducting an orchestra.
- Increased competition between companies in the mobile space means that there’s likely to be a lot of experimentation over the next few years, in order to try to find niches that are profitable. Expect the rate of change to accelerate, and lots of oddball products that ultimately wind up being dead ends. This looks similar to the early days of the “luggable” computer to me.
- Expect some amazing new collaborative software for these new, powerful mobile devices. The future is not big transparent multi-touch screens like in Minority Report; instead it will be 3D collaborative spaces that are viewed via, and interacted with by multiple people wearing glasses.