Category Archives: Business

Why is productivity growth stalling?

There’s been a flurry of press about stalling productivity growth in the West over the past few years. The usual explanations from economists tend to revolve around low levels of capital investment, poor measurement of certain new forms of innovation, or simply stalling levels of innovation.

I’d like to point out a few more possibilities that have received less coverage. The actuality is likely some combination of many of these factors. Continue reading

Blue Bird Got Da Blues

Blue bird...In case you haven’t heard yet, Dick Costolo is out as CEO at Twitter. I’m an outsider, so I have no idea whether this is deserved or not, but when analysts question a CEO’s tenure publicly, it can easily undermine their stature to the point where it becomes a self-fulfilling prophecy. In this case, it wasn’t unexpected.

Twitter isn’t profitable, and has lately shown signs of stalling growth. Whoever takes over the reins there (Jack Dorsey is stepping in as interim CEO) is going to be under pressure to “fix” whatever is ailing the company, and fast.

The problems may only have manifested since the IPO, but they aren’t really new though. Here’s something I wrote (I was talking about a spate of Twitter-imitators at the time) four years ago:

I always wonder about sites that are focused on Twitter-like feeds though. To my mind, that functionality basically forms the same purpose as RSS feeds. Its just crying out to be aggregated, and then where does that leave the feed sites, or the individual content creators?

Continue reading

Why is the price of oil dropping?

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

Net neutrality should be about user experience

stopI 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

The strategic implications of tiered network access

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.

Network problems - Flickr Creative Commons - Jeremiah Roth
Network problems – Flickr Creative Commons – Jeremiah Roth

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

What is the Hyperloop?

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…

How to compete with Glass

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…

The Fed Should Buy BitCoins

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.

Here’s why:

  1. It would provide a floor for the BitCoin market, in addition to lots of liquidity.
  2. 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)
  3. 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.
  4. 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.

Is BitCoin Arbitrage Feasible?

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.

There may be a way for investors to make money on BTC through arbitrage though – with relatively well-defined and calculable risks. Continue reading

Google, Mobile, Bandwidth and Cost-Per-Click

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.