I keep telling people about this one passage in The Big Short (which is totally awesome and very worth reading if you want to have a better understanding of why we're in the financial state we're in). Anyway, it's actually a footnote to the following quote from John Mack from Morgan Stanley (in response to an analyst asking how in the world they let one desk lose $8 billion):
Bill, look, let's be clear. One, this trade was recognized and entered into our accounts. Two, it was entered into our risk management system. It's very simple. when these got, it's simple, it's very painful, so I'm not being glib. When these guys stress loss the scenario on putting on this position, they did not envision...we could have this degree of default, right. It is fair to say that our risk management division did not stress those losses as well. It's just simple as that. Those are big fat tail risks that caught us hard, right. That's what happened.
The quote is nothing special. It's confusing and obtuse, but otherwise unremarkable. Which is exactly the point Michael Lewis makes in his footnote: "It's too much to expect the people who run big Wall Street firms to speak plain English, since so much of their livelihood depends on people believing that what they do cannot be translated into plain English."
Since reading that I've been thinking about a bunch of different industries that fit that bill. Law seems like an obvious one: If we all believed we should be able to read and understand legal documents there would be a lot less money spent on lawyers. Not sure what I have a bigger point than that, but seemed worth sharing.
In general I found this I, Cringely post about Veetle a bit boring, but the first paragraph is great:
YouTube made two fascinating announcements recently: 1) viewers are now downloading an average of two billion videos per day on the service, and; 2) YouTube is almost showing a profit for Google, its owner. Think about the glorious inefficiency embodied in that latter statement: two billion downloads per day just to break even. And this is supposed to be the future of television? Hardly.
For me it was one of those zoom out moments where all of a sudden someone puts into perspective a number that's come to seem pretty regular. Two billion is such a massive number (I assume he means streams, not downloads) and it is pretty amazing that it takes that sort of scale to make money in the game YouTube is in. I mean it's great if they're making some cash, but as Cringely points out, that's pretty maddening.
A few weeks ago I was telling someone about the Bodega food pyramid video from a few years ago by the Internets Celebrities. The gist, more or less, is that the food options at your average bodega (corner stores in urban neighborhoods) leave much to be desired.
Apparently New York City is addressing this problem with the Healthy Bodegas Initiative which was covered by the Daily News last week. The program, which is currently on at 1,000 bodegas around the city, aims to provide both financial incentives and marketing assistance to bodegas that agree to carry more healthy options:
Bodegas are encouraged to apply for permits allowing them to sell fresh produce on the sidewalk in front of the store to increase the space afforded to fresh produce, and to include healthier foods into their deli and grab-and-go sections. The Healthy Bodegas Initiative also helps stores promote and advertise their healthier items to customers through in-store displays, improved storage and shelving, promotional materials, and window advertisements.
This is the sort of program I'm happy to see my tax dollars go to.
"Since 1977 about 700,000 new businesses have been started in the US every year. The number barely changes from year to year."
"A ballooning in both venture capital funding and university courses on entrepreneurship since 1980 has had no effect on the rate of business formation."
I do like it when people intelligently pick apart an argument that gets passed around the echo chamber. Over at his blog Whimsley, Tom Slee was kind enough to do just that to Clay Shirky's "Collapse of Complex Business Models" essay. The money quote comes towards the end, "Complexity is not going away. It's just moving to a different spot in the production chain, and as it moves so does the balance of power."
Also, interestingly, the essay kills an argument I've made myself: Pointing out that the "Charlie bit me" video no longer tops the YouTube all-time most watched list. That spot is now held by none other than Lady Gaga. "The most watched video made in the last five years shows Lady Gaga and a group of hired models dancing on an elaborate set in a video that embodies complex production methods, that is part of the Vevo channel (a joint venture between Google and major record labels) and that features product placements by Nemiroff Vodka, Parrot by Starck, Carerra sunglasses, and HP Envy." So there's that.
Bureaucracies temporarily reverse the Second Law of Thermodynamics. In a bureaucracy, it's easier to make a process more complex than to make it simpler, and easier to create a new burden than kill an old one.
This wasn't because it was magically insightful, but rather because it reminded me of the most memorable thing I heard at SXSW (which I haven't talked about much around here). It came during a talk called Gaming the System with 4chan hosted by moot and Jason Scott. Both came from Jason Scott, first noting that "before there were trolls there were bureaucrats" and then noting that the thing that people like so much about the game of Wikipedia is that you get to play a character no other game has: The bureaucrat. Fun stuff for a Friday evening.
At this point, there is no reason to take it on faith that cleverness in the financial industry is a net social good. Unless you can provide some clear evidence of productive innovations since regulation began to unravel -- and ATMs don't count -- the balance of the evidence suggests that smart people have been devising ingenious ways to concentrate risk and direct capital to the wrong uses.
So innovation and creativity certainly drive the markets, as everyone is into growth and if you can't find new things to sell folks it's hard to grow. But I often wonder whether in the end it's really "good" (though I guess that's not really a fair question, since I like living in a prosperous country ... and do work for companies that rely on just this sort of "creativity"). Is this sort of innovation really the best engine for growth? I mean I know there are other models (service pops to mind first), but this seems to be the dominant business strategy. I guess R&D-based companies would be another type, but so many of those get sucked in by this sort of fauxnovation (again, see: five blades).
The Economist has a good story that (once again) disputes the long tail. Basically the thesis is that the number of hits have increased and what has been squeezed is the non-descript middle. Or, as they put it, "The stuff that people used to watch or listen to largely because there was little else on is increasingly being ignored."
What I found most interesting, though, was the following explanation for why people tend to prefer blockbusters (versus niche discoveries):
Perhaps the best explanation of why this might be so was offered in 1963. In "Formal Theories of Mass Behaviour", William McPhee noted that a disproportionate share of the audience for a hit was made up of people who consumed few products of that type. (Many other studies have since reached the same conclusion.) A lot of the people who read a bestselling novel, for example, do not read much other fiction. By contrast, the audience for an obscure novel is largely composed of people who read a lot. That means the least popular books are judged by people who have the highest standards, while the most popular are judged by people who literally do not know any better. An American who read just one book this year was disproportionately likely to have read "The Lost Symbol", by Dan Brown. He almost certainly liked it.
There are three questions you have when you're hiring a programmer (or anyone, for that matter): Are they smart? Can they get stuff done? Can you work with them? Someone who's smart but doesn't get stuff done should be your friend, not your employee. You can talk your problems over with them while they procrastinate on their actual job. Someone who gets stuff done but isn't smart is inefficient: non-smart people get stuff done by doing it the hard way and working with them is slow and frustrating. Someone you can't work with, you can't work with.
I think what happens often (at least in the marketing industry) is that people move too far to "can you work with them" side and fail to pay enough attention to the other two buckets.
Two articles worth highlighting from the Times this weekend. First, a look at cell phone pricing that's surprisingly full of interesting points. For instance, when Sprint offered the Fair and Flexible plan in 2004 ("300 minutes for $35, and each additional block of 50 minutes for $2.50") it would seem like the sort of thing otherwise overcharged mobile customers would jump on. But they didn't ... Because they didn't like that their bill fluctuated greatly month to month. How crazy is that? Convenience, in this case, was likely worth $20 a month to folks (and calling it convenience is a stretch, after all, autopay is an option).
The second article was a look at Bloomberg (the company, not the dude). They're especially interesting to me because they're a media company who is booming while everyone else is struggling/dying. It speaks to something I think will be increasingly important in the media world in the coming years: Journalism as a non-core business. They didn't buy BusinessWeek to make loads of cash off it (they operate their current magazine at a loss), rather they bought it to extend the brand so that they can build other services that people will actually pay for. Seems to be working so far (the strategy, not the BusinessWeek thing, which just happened).
An interesting perspective on what the new Google Music Search really means. (For those that missed the news, "Now, when you enter a music-related query -- like the name of a song, artist or album -- your search results will include links to an audio preview of those songs provided by our music search partners MySpace (which just acquired iLike) or Lala.") Anyway, back to the interesting perspective:
Why should a song file from an "online retailer" come up first in search results instead of the band's own web site? How fair is that? What is this going to do to online strategies for bands? I thought the Internet was supposed to create a level playing field? And, surely Google is going to be serving up ads on these pages. How will the ads appear in the search results and how does that money get split up?
Google continues to run into this "evil" problem as they need to make tough decisions about what to prioritize, where. They're treading a very fine line as a company that uses data we create and serves it back to us, increasingly rearranging not in their original vision (ranked in order of what we think is most relevant), but rather in order of what makes them the most money.
Interesting post over at Influx Insights about a company that's gone to building iPhone apps in 48 hours. It hits on two big points I've been throwing around in my head for a few months now: First, couldn't you keep down costs and fail faster if you gave yourself an artificial deadline? This recognizes that we're not launching final products after the first iteration, but rather prototypes with which we can judge whether there's a "there, there." Second, they mention that they actually spent more time working on the promotional video than the app itself. Marketing is incredibly underutilized in the tech world to this day. You can still create a ton of value for yourself by just creating a fancy-looking video. For all the talk about "product as marketing," there still seems to be a ton of value in "marketing as marketing."
Often, when an industry faces decline, management and ownership will opt to take door number three; rather than reinvesting profits in new businesses or redistributing them to shareholders, they'll direct them to legislators and lobbyists in an effort to buy themselves protection from competition. This has been the strategy used by agricultural and manufacturing interests, often, though not always, with success. I'm actually a little surprised that journalism has not been more aggressive or successful with appeals for government help.
While the author acknowledges it would be hard to squash the internet, it's an intriguing point. When other industries get in real trouble there's definitely a lot of going back to the government for help.
Say what you like about Vivendi, but the French media conglomerate has done an admirable job of recession-proofing its business model. A focus on subscriptions - whether for pay-TV, mobile phones, and the ability to hunt goblins and orcs in the online game World of Warcraft - has helped Vivendi weather the downturn better than rivals more dependent on advertising. A day after Germany's Bertelsmann reported a €333m net loss, dragged down by a collapse in ad revenues at broadcaster RTL, Vivendi on Tuesday unveiled profits that beat most analysts' estimates.
Subscriptions are such a simple mechanism and one of the things that are actually made easier with the web, where you can subscribe to things with both smaller amounts of money and more granularity. Ease is worth paying for. Over the last few months I've wondered, for instance, why I can't get just the Lex Column delivered to my Kindle (Amazon's fault I assume) and why I can't subscribe to all my favorite label's releases for the year. (For whatever that's worth.)
One of the things I respect most about what Denton does with Gawker is offloading things while they're still doing pretty well. If you ask me, it's precisely his willingness to cannibalize his own businesses that helps hims stay on top. I've had trouble articulating exactly how to describe that behavior until I ran across Vijay Govindarajan three box model. The three boxes are, "manage the present," "selectively abandon the past" and "create the future." It's a simple framework, and seems pretty obvious, but as Govindarajan most companies focus only on box one, a "tendency [that] has been particularly acute in the past two to three years, as most leaders have emphasized reducing costs and improving margins in their current businesses."
Anyway, I'll refer to Gawker Media's behavior as "selectively abandoning the past" from here on out. Though he catches some slack for it, I think many companies could learn quite a bit about being less precious with their products from Denton. Plus it sounds nicer than layoffs.
Though I feel a bit bad linking to it, my friend Scott's post outlining the mistakes he made with his startup, Lookery, really struck a nerve. Scott is a very smart dude who has been in the game for awhile, so getting a chance to get inside his head on something like this is quite valuable.
Anyway, he goes through what he sees as his three big mistakes: Exposing the company to a single point of failure (Facebook), failing to cut losses when the time was right and entering a market that wasn't quite ready yet. I can't imagine how many now-defunct companies could credit one of those three factors for their demise. Good advice for any entrepreneur (or hopeful-preneur).
Remember a month ago when there were rumors that BusinessWeek was going to sell for a dollar and everyone had some brilliant idea of what they should do with it? Well, turns out things aren't quite so cut and dry (which I suspected, as I worked for a magazine in a similar position, albeit with far less liability). Anyway, the magazine has $40 million in subscription liabilities, which Felix Salmon was kind enough to define:
What's a subscription liability? It's basically all the money which BusinessWeek has already been paid, in subscription revenues, for magazines it has yet to deliver. It's a liability because if it can't deliver the magazines, BusinessWeek would have to refund its subscribers their money, or somehow try to fob them off with an equivalent product.
Yet another collision of business reality and media punditry.
Ekins are official company storytellers employed to evangelise about the Nike brand and its sports technology. Before being unleashed on the world, Ekins are required to undergo an almost military-like training regime comprising a nine-day rookie camp at Nike's headquarters in Oregon and a full day's running at the Hayward field track where Bill Bowerman worked as a track coach. Almost unbelievably, as a further sign of their devotion to the brand, each Ekin is then invited to have the Nike 'swoosh' tattooed on their ankle ahead of their 'graduation'.
I'm pretty fascinated by the ways different companies ensure their culture is passed on. It seems to be a pretty central part of the long-term success of an organization.
Adrian sums up the issue nicely with this: "I think of this as a very fundamental contradiction in the system. A system structure that rewards companies for doing the wrong thing. A system that, in the case of the pharmaceutical industry, simultaneously forces companies to look for the most expensive way to solve a problem and that prevents them from solving the most pressing problems."
From there [manual sorting by employees, many of which are grandparents], action shifts to long machines that go ffft. This, right here, is how you get discs as fast as you do. Inspected discs are scanned into the inventory by a machine that reads 30,000 bar codes an hour -- ffft, ffft, ffft. The moment this machine reads the bar code, you receive an e-mail letting you know that your disc arrived. Then discs are scanned a second time -- if a title is requested, and around 95 percent of titles get rented at least once every 90 days, the machine separates it and sorts it out by ZIP code. (The entire inventory of the building is run through this daily, a process that alerts other warehouses of the location of every one of the 89 million discs owned by Netflix.) After that, separated discs are taken to a machine called a Stuffer -- which goes ssssht-click, ssssht-click -- and stuffed in an envelope, which is sealed and labeled by a laser that goes zzzt.
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Q: What is this site all about?
A: I think Michael Bierut explained it nicely a few years ago in response to people asking him why he didn't write more about design on Design Observer: "But the great thing about graphic design is that it is almost always about something else. Corporate law. Professional football. Art. Politics. Robert Wilson. And if I can't get excited about whatever that something else is, I really have trouble doing good work as a designer. To me, the conclusion is inescapable: the more things you're interested in, the better your work will be." Replace "graphic design" with "media/marketing/technology" (or whatever you'd like to call my field) and you've got my deal.
Q: Where else do you live?
A: Good question. All over the place as a matter of fact. On Tumblr for more randomness, Twitter for short bursts, Dopplr for places I'm going, Delicious for things I'm reading, last.fm for music I'm listening to, Flickr for photos I'm taking and Facebook because I don't really have a choice. (Oh, and Amazon for stuff I want people to buy me.)
Q: I meant that literally. Where do you live?
A: Oh, sorry, Brooklyn, New York is where I call home at the moment.
Q: Any other side projects you'd like to tell us about?
A: As a matter of fact, yes. There's How Much Does it Buy?, a calculator for the rest of us. Holy Crap! Facts (and accompanying Twitter feed) which is pretty much exactly what you'd expect. Da' Bears Blog is, in my opinion, the best Chicago Bears blog on the web (I don't write it, I just helped it get off the ground) and Tweemail is a little PHP script I wrote for getting Twitter updates by email. I'm also always working on a few other things and will let you know when they're ready for public consumption.
Q: Um okay.
A: Yeah, that's a fake question mostly so I can throw in this one other quote I like that I think sums up some of what I try to do here. This one comes from Albert Einstein (or at least the internet says so) and goes something like, "If you can't explain it simply, you don't understand it well enough." Words to live by.
Hi, I'm 