What happened to Kavo, Tizaa?

I want my
I want my
I want my DVRP2P


From the first time I heard about Tivo, I expected the obvious next step, which would be gargantuan, the biggest thing since the web browser. It was obvious; Tivo + Napster! But Napster was already dead so I started saying: Tivo + Kazaa! Kazaa just happened to be the hot P2P file sharing network at the time (circa 2002). It's not necessarily Tivo anymore either, now it's DVR a whole category. So to update the idea let's call it DVR+P2P.

It's obvious. The DVR is basically a computer with a big hard drive, and a fancy video decoder/tuner card. Tivo is essentially an application that runs on Linux, I believe. Moreover DVRs connect to the Internet. So if they just added a P2P software client on it, boom! Suddenly not only can you record your own TV programs, you can also search every other user's recorded programs. This means almost anything that has ever been on TV on any channel is accessible for viewing on demand by everyone! The benefit to users would be ... I can't find a strong enough superlative. It'd obviously be HUGE. And incredibly easy to do.

So why hasn't it happened yet?

• Copyright infringement? This is running on a closed device so they could easily restrict the software to only search "legal" videos from the same cable or satellite provider only.
  
• Advertising? They already allow fast-forwarding through commercials, it doesn't seem to have killed the ad revenue. In any case they could disable ffwd if they wanted to.
  
• Revenue? DVR+P2P would be so great they could charge any price for the service everyone would still sign-up for it.
  

Are they just extremely paranoid?

Here's what AFAIK is the conventional theory about this: Traditional laws relied on the physical form of books, records etc. to control the amount of copying, and now with digital media + data networks making copying exponentially easier the laws just don't fit anymore, and so there will be some major adjustments in the coming decades. In the meantime content owners are paranoid and are just blocking every new distribution method even if it's beneficial to them, like they tried to do when VCRs first came about. Scrounging through some links on my old homepage, I found a link to the first article I first read on this: "Who will own your next good idea?".

Today, I stumbled across a brilliant presentation by Laurence Lessig from 2002 entitled "Free Culture". In fact this post was supposed to be a quick link to that preso but it has released years of pent-up frustration on this subject in me. Anyway, "Free Culture" augurs a much darker cloud over the same field. He makes the point that digitization is expanding the scope of regulated use dramatically to the point of suffocating unregulated use. Which seems upside down because we are so conditioned to think of digitization as threatening regulated use. But when you think about it, it's absolutely true! Brilliant!

<irony>
That link on the word Brilliant which I've used before was to the hilarious Guinness commercial where they keep saying "Brilliant!"  Now it says "This video has been removed due to terms of use violation." What a perfect example of legal protection of creativity!
</irony>

The more I think about it, the more amazed I am by the truth,  simplicity, and importance of that fact: digitization is expanding the scope of regulated use. Unregulated use which used to be 90% of the activity, like simply reading a book or lending it to a friend, is being replaced by regulated use: reading a web page is technically a regulated activity, there are restrictions on what you can or can't do with those bits of content whether they are in your computer's RAM or HD, or pixels.  "Fair use" is just a minor sideshow. Unregulated use is the 800lb gorilla. I don't think most people realize that and they really should.  Lessig is a giant.  

"Free societies enable the future by limiting the past" -- Laurence Lessig.

Will the circle be unbroken

For the first time ever, the IMF is borrowing.

When the lender
of last resort
Becomes a borrower,
Will the circle be unbroken?



(Couldn't find the John Lee Hooker version...)

Nemo, Zen and the art of 20%

One of the cool things about my employer is the concept of 20% time. Basically it's a license to spend a chunk of your time working on things that you think are good, useful interesting, etc., but otherwise might not get done. Recently I finished a small 20% project, and it was officially announced today. Read all about it, and then go and try it!

Note: If you can't see Ethiopic fonts on your computer, here are some links to Ethiopic fonts to download and install.

L'albatros

Today, I ain't about economics, or politics. Not technology, nor internet. Not even epistemology. Not even wow! It could be "De gainsbarre a biggie". But no. Today, it's "Lui, naguère si beau, qu'il est comique et laid!".... beau de l'air comme disait Charles:


Souvent, pour s'amuser, les hommes d'équipage
Prennent des albatros, vastes oiseaux des mers,
Qui suivent, indolents compagnons de voyage,
Le navire glissant sur les gouffres amers.

A peine les ont-ils déposés sur les planches,
Que ces rois de l'azur, maladroits et honteux,
Laissent piteusement leurs grandes ailes blanches
Comme des avirons traîner à côté d'eux.

Ce voyageur ailé, comme il est gauche et veule!
Lui, naguère si beau, qu'il est comique et laid!
L'un agace son bec avec un brûle-gueule,
L'autre mime, en boitant, l'infirme qui volait!

Le Poète est semblable au prince des nuées
Qui hante la tempête et se rit de l'archer;
Exilé sur le sol au milieu des huées,
Ses ailes de géant l'empêchent de marcher.


Exilé sur le sol au milieu des huées....

Microsoft files pay-per-use PC patent

Note to self: Microsoft files pay-per-use PC patent... What about Amazon's EC2 and S3 services? I assume they were able to patent some of it before launching. Is the only difference here that the MS patent applies to "personal computers" whereas Amazon's is for "servers"? Eeeeeenteresting. This may be relevant to me....

eBay: fall of an icon

I have always been huge fan of eBay. Actually not always. At first I was a fan of Onsale, the first auction site on the net! In fact I bought my first laptop in an auction on onsale.com, in late 1997. Later I bought their stock. Then they merged with egghead.com and then went out of business ages ago... While writing this post, I noticed there's a current website at onsale.com which seems to have nothing to do with the original. So anyway when I heard of eBay, I dismissed them as a copycat. But having a more than casual interest in auctions, inevitably I realized the main difference between onsale and ebay was huge.

Ebay had sellers! It's hard to appreciate today just how revolutionary that was kids.  Let's just say, in addition to the use of auctions, it presaged long-tails, user-generated content and many other things that we consider fundamental to the Internet today. Even amidst all the dot-com hype, eBay was definitely one of the truly revolutionary things about the Internet. And it was profitable! During the dot-com bust, and for years afterward, eBay shone ever brighter.

But for the last couple of years, I've become convinced that eBay has entered it's John Sculley era. Like Apple in the late 1980s, faced with a new wave of challenges, they have responded with a misguided strategy. I think they are neglecting their strengths and fighting from weakness, which  as we've known since Sun Tsu, is a path to likely defeat.  

Thus, in accordance with my rights and obligations as a blogger that no one reads, I hereby charge eBay Inc. with failure to fulfill it's destiny as an Internet icon, in ways that include but are not limited to:

1. Website suckage: Every time I've tried to buy or  sell stuff  on ebay in the last couple of years, I've been shocked by how cluttered, messy and unusable the site is. Three years after Ajax became the norm, ebay.com pages look like they are from cgi shell scripts written in 1996. 
   
2. Concentration on the fat head instead of the long tail: they changed the fee structure in a way that was widely interpreted as anti-small seller, anti-auction, pro-fixed-price.  They even shockingly removed the ability for sellers to leave feedback on buyers!
3. New management whose arrival coincides with moves betraying a  profound misunderstanding of their core value as a two-way marketplace.

To make a long story short, short EBAY, long AMZN.

NOTE: This post was first drafted in July 2008 but not posted until December.  Things have changed in the financial markets since but all of the above still applies IMHO.

Stealth bailout

A few days ago, I was shocked to find out that there's another bailout of a trillion dollars in loans by the Fed:

"The Fed's lending is significant because the central bank has stepped into a rescue role that was also the purpose of the $700 billion Troubled Asset Relief Program, or TARP, bailout plan -- without safeguards put into the TARP legislation by Congress.

Total Fed lending topped $2 trillion for the first time last week and has risen by 140 percent, or $1.172 trillion, in the seven weeks since Fed governors relaxed the collateral standards on Sept. 14. The difference includes a $788 billion increase in loans to banks through the Fed and $474 billion in other lending, mostly through the central bank's purchase of Fannie Mae and Freddie Mac bonds."

While we were debating the $700B bailout, there was a stealth bailout that was three times bigger!

Yin and yang of the greenback

China has a huge trade surplus with the US which has been growing since 1985. Normally, or in theory, exporters repatriate the money earned abroad, which makes their own currency rise and the importer's currency fall.

But in this case, for over 20 years, China has been keeping that money in dollars. Compare "Foreign Portfolio Holdings of U.S. Securities". Two countries stand out. Japan and China both hold huge amounts of US securities. (Actually the ones that really stand out are Cayman Islands and Luxembourg but that's another story!). Further down on the same page, see "U.S. Portfolio Holdings of Foreign Securities" which shows the US has a similar amount of Japanese securities. But that's not the case with China. There it's completely one-sided with China holding huge amounts of US debt. At some point they will need to sell those dollars right? That's the 1.4 Trillion dollar question. Basically China has been delaying its currency's rise in order to continue growing exports.

The current economic crisis changes things.

1. As US and Europe imports slow down, China might shift away from exports and more towards infrastructure and internal consumption. This means their reserve strategy might change to bringing money back home. 
2. A loss of confidence in the US financial system. 
3. A huge increase in US public debt from the bailout and the stealth bailout.

All three things imply China will want to sell dollars and dollar assets.

What else can we imagine? Weakening dollar will help American exports. Which may be critical for new energy technology products (in solar, wind, hydrogen  and who knows what else) to develop and succeed.

So here 4 bold predictions for this different world:

• USD vs CNY will go down,
• the US dollar will no longer be the world's primary reserve currency, but 
• America will do what it has historically done best -- create a new industry for the world,  meanwhile
• China's billion people will get an accelerated rise in standard of living. 

Manipulation of prediction markets

Nice post on manipulation of prediction markets: ...manipulation can improve (!) prediction markets - the reason is that manipulation offers informed investors a free lunch.

Nice also to see our old friend Hanson.

... the first casualty is causality

This week, like everyone, I had some thoughts about the $700B financial industry bailout. I put them in an email to some friends a few ago... Here they are (with some edits):

This bailout is looking more and more like a scam.   The fear-mongering about jobs sounds a lot like when the same folks were saying Saddam was about to nuke the USA in alliance with Al Qaeda. Just because it's scary, it's not automatically true, and it's not automatically the case that the proposed solution will avoid it. 

$25B for Detroit automakers slipped into the bailout? WTF? They would surely have been turned out if they had asked for it alone, but piggy-backed into the $700B... Recall how after Sept 11 all the airlines were begging for bailouts, and many of them got turned down. Imagine how many companies will try to jump onto this bailout like hungry vultures on fresh kill. 

Also, note that the relationship between Paulson and Goldman Sachs is eerily similar to the relationship between Cheney and Halliburton. Nothing against Paulson per se, I'm just pointing out the parallel. In any case, even if he's a saint, is any government capable of disbursing a freestanding $700B fund without massive corruption? Visions of scams with this bailout that'd make Halliburton's no-bid contracts for Iraq look like chump change....  In fact, this whole mass psychological phenomenon  looks more than a bit like an accelerated rerun recent history... With Fannie Mae-Freddie Mac-Lehman-AIG, in the role of Sept 11, and the Big Bad $700B as the Iraq Invasion of 2003,  the US congress as itself,  and special appearance by the Great Depression II as Saddam's WMD. I don't mean to compare the events of course, fundamentally different crises. But the the political and business dimensions sides are similar.

I'm also reminded of Russia in the early 1990s. The experts kept screaming that if this or that privatization didn't happen right away, the consequences would be severe, Russia would be come communist again, the 3rd world war would start immediately, etc etc. Guess what? Behind all the deadlines, and crises, rescues, etc., there were some dudes rigging privatization auctions. By the time people woke up to the game, seven gazillionaire oligarchs had ownership of more than 50% of the GDP of the ex Soviet Union, and the standard of living had dropped, life expectancy had dropped, the economy was in ruins... Basically the entire country got jacked by a few dozen people.

Back to USA 2008. The crisis  exists of course,  and ok let's agree something must be done [NOTE: this was written on Wednesday Oct 1, before the Trouble Asset Recovery Program (TARP)  bailout was approved by congress today].  But I'm skeptical about TARP.

So let's go to the root causes - not because I presume to know something more than the experts have been saying, but just to help me understand by summarizing. The crisis exists because:
1) we don't know how many more homes will foreclose, and what they will be worth when they do; which leads to
2) uncertainty in value of mortgage backed securities (MBS) which leads to
3) uncertainty about balance sheet of banks with lots of MBS, which leads to
4) unwillingness to lend i.e. credit crisis, which leads to loss of savings, loss of jobs, homelessness etc.

Now instead of injecting money at #3 which is what TARP (the current proposed bailout) does, why not inject it at #1? I think the government should just say it will buy the houses that are being foreclosed on rather than the securities derived from them. This seems better to me than TARP because:
a) the taxpayer is buying something whose valuation is better understood, and therefore taking less of a risk;
b) by having a buyer of last-resort for the houses and a known worst-case price, you're putting a floor under the value of these MBSes... this clears up the bank balance sheets, everyone will know which banks are solvent and not, and those that are can resume lending and that stops the credit crunch
c) the socio-political side-effects are better -- i.e. any bailout would not be for insolvent banks and poorly managed companies but for defaulting homeowners, by making them tenants instead of homeless, and the opportunities for corruption are greatly reduced
d) worst case in the long term, the government gets stuck with $700B of new public housing that's hard to sell (but has tenants), whereas the current bailout's worst case is just burning $700B on paper that ends up being worth $0.

I'm no expert but the more I read about this, the more I believe that it's better to solve the problem at the source, i.e. #1 and not #3.

I learned later that this is similar to something done in the 1930s called the Home Owners' Loan Corporation (HOLC), and has been advocated in the current context by Roubini. Some politicians have also called for it, but in addition to TARP!  The Washington  Post too  has a column proposing something along those lines.

In any case, TARP was approved today, so we'll see. If it gets implemented, I predict scandals and a blue ribbon inquiry comission circa 2010.  Hopefully it will work in spite of that, because alternatives are probably eliminated.